Recent loss-making resales data sends a strong message to owner occupiers/investors forced to sell due to mortgage unaffordability: If you bought in the last few years, have to resell fast and live in a high-density neighbourhood – the risk of making a loss is increasingly likely.

CoreLogic’s latest Pain & Gain Report for the September quarter revealed that loss-making short-term resales on properties held for three years or less virtually doubled to 6.6% from 3.6% a year ago.

Unsurprisingly, the rate of short-term resales in 2023 broadly mirrored a rise in mortgage stress [and serviceability issues] as interest rates continued to head north.

Decade high

While the portion of short-term reselling dipped marginally quarter on quarter, resales with a hold period of three years or less hit a decade high in the year to September.

What’s also evident within CoreLogic resale analysis notes head of research Eliza Owen is the greater share of loss-making within a relatively short hold period, as opposed to properties commonly making a loss after being purchased in mining regions around a decade ago.

Overall, properties held for three or less years accounted for one in five of loss-making sales in third quarter 2023, spread out across the country.

The higher the density – the greater the risk

CoreLogic data suggests losses are more prevalent within neighbourhoods where there’s more high-density housing supply.

For example, loss-making sales were most acutely felt in Inner Melbourne which recorded the highest portion at 4.1%, followed by Melbourne West (3.7%), and Sydney’s Central Coast (3.6%).

More than two in five resales in the Melbourne city council area were at a loss (41.1%) followed by Stonnington (34.2%), Boroondara (18.8%) and Port Phillip (18.3%).

In Sydney, the highest share of loss-making sales were in the Ryde council area (24.2%), followed by Burwood (23.7%), Strathfield (22.8%) and Parramatta (22.5%).

Median loss

The median loss from these resales during third quarter 2023 was $30,000, with most sales being houses (64.8%).

With the Reserve Bank (RBA) forecasting unemployment to rise to 4.2% by the end of next year, up from 3.9% at the end of 2023, Owen suspects short-term resales could remain elevated, especially as high rates impact the labour market.

“This will test serviceability and may lead to an increase in motivated selling for mortgagors with high debt levels and low savings buffers,” Owen said.

“However, this is ultimately a small share of mortgagors, so the portion of short-term resales is not expected to grow substantially from where it is now.”

Average gross profit

Despite capital growth conditions looking weaker across Sydney and Melbourne, Owen expects ongoing increases in home values nationally to contain the rate of loss-making short-term resales.

Loss-making sales aside, CoreLogic data reveals that around 93.5% of the 86,000 resales in the third quarter of 2023 recorded an average gross profit of $298,000, up from the second quarter 2023’s revised 92.6% of profitable sales at a median gross gain of $290,000.

Overall, houses were more likely to make a profit (96.8% of sales) than units (87.4%), while owner-occupiers were less likely to make a loss (3.2%) compared to investors (10%).

In total, nominal profits from third quarter 2023 were estimated to be $27.4bn, around $6bn higher than a low of $21.6bn in the three months to February 2023, coinciding with the trough in national home values.