Loss-making home resales rose across Australia during the September 2022 quarter amid interest rate rises and falling home values.  

CoreLogic analysed about 83,000 property resales during the three months to end-September and found the proportion of profit-making sales fell to 93.3%, down from a recent high of 94.2% in the three months to May. 

CoreLogic Head of Research Eliza Owen said profitability deteriorated most quickly across the combined capitals, as Australian mortgage holders faced a challenging period. 

“A rise in interest rates creates a double whammy for homeowners, in that the cost of debt becomes harder to service, and the underlying asset value against which the debt is held declines,” Owen said. 

“A key question surrounding CoreLogic resales data will be whether more recent buyers are selling at a loss in the current climate.  

“This would indicate a greater level of risk in the housing market, as more ‘distressed’ or ‘motivated’ sales would create a rise in listings volumes, and put further downward pressure on prices.”   

Owen said higher volumes of loss-making sales had occurred in areas where there had been less growth in value over a long period of time, such as resource-based markets and high-density investment markets. 

Perth accounted for around 21% of loss-making resales across Australia in the quarter.  

Of the loss-making sales in Perth, the median hold period was 8.8 years, suggesting a voluntary decision for the seller to incur a loss, rather than being in a distressed position from a recent purchase. 

“Markets that have seen a sharper capital growth decline in recent months, such as the house segment, or popular lifestyle markets, still have a relatively low incidence of loss-making sales,” she said. 

“This analysis has not shown any signs of a material increase in distressed sales.  

“While it’s true the recent decline in home values increases the chances of vendors selling at a loss, even properties held for less than two years had a median resale gain of $121,00 in the quarter.”  

Owen said the decline in profit-making sales broadly coincided with recent home value falls, noting Australian dwelling values fell 4.8% between a peak in April 2022 and the end of September, and have since fallen a further 2.2% to the end of November.  

“While the value of homes in Australia declined sharply between April and September, the market saw fewer homes sold for a loss over the same period,” she said. 

“This is likely due to fewer sales and listings amid the housing market downturn, where overall resales on the whole fell -17.8% in the three months to September, compared with the three months to April 2022.” 

The resales market is likely to be tested further in 2023, with the majority of outstanding fixed loan terms secured through the pandemic to expire by the end of next year. 

Owen said this could prompt more motivated selling in a high interest rate environment, even if property sellers have to endure a loss.  

However, strong labour markets will also underpin serviceability.  

“With home values generally still above pre-pandemic levels, there is likely to be a ceiling on the rate of loss-making sales observed in the coming quarters,” she said.  

“The fluctuation in the rate of loss-making sales is not expected to be as severe as the overall decline in property values.  

“The rate of loss-making sales has not spiked as dramatically as values have fallen, because losses are only realised if a property owner chooses, or is forced, to sell. 

“Selling activity has trended lower through the downswing, with the count of new advertised listings down 13.5% on the previous five-year average nationally through September.  

“There has been little evidence to date of a rise in motivated selling amid falling home values.”