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Properties sold for a loss increasing

CoreLogic’s latest Pain and Gain report shows the frequency of house price gains is declining.

By: Sally Lindsay

14 August 2023

Property gains have dropped, down to a median profit of $290,000 – well down on the peak profit of $440,000 in the last quarter of 2021 – the height of the housing market boom.

The number of properties being sold for a gross profit dipped to 93.1 per cent in the second quarter of this year. While that remains a high figure – reflecting the fact that long hold periods mean most sellers still make gains – it is lower than 94.1 per cent in the first quarter of this year and well down on the 99.3 per cent peak in the fourth quarter of 2021.

Properties that were sold for a gross profit in the second quarter of this year had been owned for a median of 8.4 years. By contrast, for loss-making sales in the three months to June, the median hold period was just 1.8 years.

CoreLogic chief economist Kelvin Davidson says the share of property sales for a profit, and the fall in the size of those profits, continues across the country, whether the figures are broken down by property type (eg apartments vs houses) or owner type (investors or owner-occupiers).

From only 0.5 per cent of stand-alone house sales being made below the original purchase price in the first quarter of last year, that figure has now risen to 6.2 per cent. It’s the highest since the first quarter of 2016, or in other words, relatively fewer house sellers are making a gross profit than has been the case for about seven years.

Apartment losses

For apartments, 26 per cent of sales in the second quarter of this year were made for a gross loss. In mid-2021, that figure was only about 5 per cent, and the latest result is the highest since 28.1 per cent in the third quarter of 2013.

Davidson says it’s important not to get carried away by that. “First, the proportion of apartment loss-making sales has been much higher in the past, eg 45 to 50 per cent in the early 2000s and about 2008-10. Second, the raw number of loss-makers is still relatively low, at only 78 deals in the second quarter of this year.” (The figure of 28.1 per cent in early 2013 equated to almost 140 deals).

“None of this should be too surprising,” he says. “National average property values are 13 per cent below their peak and are now back down at mid-2021 levels – so anybody who bought a year or two ago and sold more recently has seen market conditions change significantly.”

Of the loss-making sales in the second quarter of this year, about 60 per cent had a hold period of less than two years.

“It’s also important to note that the upwards trend for ‘pain’ does not necessarily mean that the wider housing market is yet to find a floor.

“It will tend to be a lagging measure of the market. When prices troughed after the GFC and then started to rise again from about mid-2010, it was another nine to 12 months – mid-2011 – until the ‘pain’ percentage stopped increasing.”

Davidson says a further increase in the share of property sales being made for a loss seems likely in the next few quarters, even as property values stop falling.

He says with the labour market still robust and few signs to date of widespread mortgage repayment problems, a return to the “pain” peaks of previous cycles (eg about 20 per cent post-GFC) doesn’t seem likely in the near term.

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