In the National Overview of this report, Corelogic provided evidence to support their explanation of the profit-making aspect. It is shown that in March 2023, profit-making resales declined to 92.3%, marking the third consecutive quarter of decline. The volume of sales with nominal gains increased by 4.6% to around 5,800. Total nominal profit from resales was estimated at $22.7 billion, down from $40 billion in December 2021. Nominal losses expanded to around -$318 million, compared to -$302 million in the previous quarter and -$296 million in March 2022.

Rolling quarterly rate of profit-making sales versus rolling quarterly change in Home Value Index (national, dwellings)

Portion of loss-making sales, capital cities versus regional – rolling quarter

In addition to this, between December and March, the Australian dwelling market’s profitability rate dipped by 80 basis points, despite capital growth trends improving. Profit-making sales tend to move with capital growth, with profit-making sales lagging capital growth. The CoreLogic Home Value Index shows signs of recovery since March, with national home values lifting 2.3% by May. This could signal a turn for nominal loss homes selling, which could stabilize in June.

Mortgage serviceability, as well as value loss, that could be weighing on profitability

As explained by Corelogic, Home values may rebound, but profitability may fall due to rising rates and difficulty servicing mortgages. Below are the following factors:

• CoreLogic estimates that monthly variable home loan payments on a $500,000 loan have increased around $1,030 for owner occupiers, and $1,050 for investors between April 2022 and June this year.
• The national housing market has recently seen a short, sharp drop in value between April 2022 and February 2023.
• As of March 2023, national home values were still -8.5% below the recent high in April 2022.
• Despite the greater potential to incur a loss, more loss-making resales are in fact occurring within the space of one year.
• Recent home buyers with a high loan-to-valuation ratio may be more pressured to sell amid rising rates, due to high levels of housing debt.

Portion of loss-making sales, capital cities versus regional – QoQ change

Portion of loss-making sales, capital cities

In the March quarter, loss-making sales accounted for 4.0% of owner-occupier resales, up from 3.6%. Investor resales had a higher incidence of loss from resale at 12.6%. Investors comprised 28.0% of resales, but 55.3% of loss-making resales. Median gains from resale were higher for owner occupiers at $315,000 compared to $190,000 for investors. Regional NSW, Victoria, SA, and Hobart saw slightly higher profit-making sales for investors.

Regional Vic was the most profitable region for investors. Loss-making sales on investment properties may continue to trend higher as rate hikes pass through the mortgage market in 2023.

 

Unit sales in Australia have increased from 11.2% in April to 15.4% in March 2023, while house resales have seen a low increase from 3.2% to 3.8%. This raises the profitability gap between houses and units to a record high since 1996. Factors contributing to this gap include weaker capital growth in the unit market, more house completions, and increased unit construction, which makes up an increasing share of housing stock.

Rolling three-month rate of loss-making sales – houses versus units, national

The increase in loss-making unit resale rates in Australia may be due to increased interest payments, especially for investors in unit ownership. CoreLogic estimates monthly repayments on investment loans have increased by $964 in the past year. Rent valuations have also seen record growth, but median monthly increase is $229. The largest discrepancies in house and unit resale profitability are in Darwin, Perth, Melbourne, and Sydney. The most profitable unit markets are Regional Vic, Regional NSW, and the ACT.

Proportion of total resales at a loss/gain, houses vs. units, March 2023 quarter

Inner Melbourne continues to be a pain point for profitability Comparing

Loss-making unit sales in the Melbourne – Inner SA4 market increased by around 300 transactions in the March 2023 quarter compared to the same period last year. The majority of these sales were investment sales (87%), with a median loss from resale of $52,000 and a median proportional value loss of -10.5%. The market is expected to show improvement in the coming months, with monthly increases of 1.3% in May 2023 and a strong bounce back in rental demand. However, higher interest repayments for investors may still prompt some to sell at a loss amid ongoing rate hikes.

 

In the March quarter, loss-making sales accounted for 4.0% of owner-occupier resales, up from 3.6%. Investor resales had a higher incidence of loss from resale at 12.6%. Investors comprised 28.0% of resales, but 55.3% of loss-making resales. Median gains from resale were higher for owner occupiers at $315,000 compared to $190,000 for investors. Regional NSW, Victoria, SA, and Hobart saw slightly higher profit-making sales for investors.

Regional Vic was the most profitable region for investors. Loss-making sales on investment properties may continue to trend higher as rate hikes pass through the mortgage market in 2023.

Proportion of total resales at a loss/gain, owner occupiers vs investors, March 2023 quarter

The median hold period for resales in Australia was 8.9 years in March 2022, down from 9.9 years in December and 9.0 years in March 2022. This represents a decrease from the first half of 2014. Australian home values rose 38% between December 2014 and March 2023, with Perth experiencing a -12.9% loss and Darwin experiencing a -6.2% decline. Resource-based markets accounted for 64.3% of loss-making sales with a hold period of 8.3 years or more. Regional Tasmanian units had the lowest median hold period for profit-making sales, at 6.4 years.

The maximum median hold period for properties making a nominal loss was across regional WA units, with a median nominal decline of $42,000. The highest gains from resale were across properties held for more than 30 years, with a median result of $700,000.

Median nominal return from resales by hold period (years) – March 2023 quarter

The recent housing value downturn has reduced nominal returns from resale from a hold period of less than two years, with a median resale result of $73,000 in March 2023. However, the portion of resales in property held for less than two years increased to 8.4%, and the portion of loss-making sales associated with this short hold period was 12.4%. This suggests that a higher portion of sellers have chosen to offload their property in a short space, despite reduced nominal gains and a higher chance of making a nominal loss.

Median hold period of profit and loss-making sales, Mar 2023 quarter

The Pain and Gain analysis shows a slight decrease in loss-making sales across six major resource-based markets at the SA4 regional level, from 20.8% to 20.1%. The Mackay – Isaac – Whitsunday region and West Australia – Outback (South) market experienced a decline, while the Central Queensland market had the lowest profit-making sales rate at 78.1%. Capital growth and sales trends in mining markets have improved since the pandemic, with the rate of loss-making sales falling from 44.7% to 20.1% in March 2023. The outlook for commodities is uncertain for the rest of 2023, potentially changing the trajectory of profit-making sales in mining markets. Annual rent values remained high in Regional WA, with gross rent yields at 6.4%.

Rate of loss-making sales, select SA4 resources markets – rolling quarter

CoreLogic analyzed resales in nine coastal and non-coastal regional markets in Australia, focusing on ‘tree-change’ destinations with natural landscapes and high amenity town centers. The overall rate of loss-making sales increased to 2.6% in the March quarter, up from 2.3% in December 2022 and trending higher from a low of 2.1% in June 2022. Illawarra saw the highest increase, but it was relatively low. Quarterly increases in loss-making sales also occurred in Geelong, the Gold Coast, the Sunshine Coast, the Newcastle Lake Macquarie region, and Richmond Tweed. The increase in loss-making sales coincides with an average decline in dwelling values across coastal markets of -8.5% between April 2022 and March 2023. Richmond Tweed’s high loss-making sales rate marks the highest level since May 2020, due to the pandemic uncertainty and rising interest rates.

Rate of loss-making sales, select SA4 markets – rolling quarter

 

In non-coastal regional markets in Australia, the rate of loss-making sales slightly increased in the March quarter to 1.8%, up from 1.2% in June 2022. Major non-coastal regions like Ballarat, Bendigo, the Central West, and the Hunter region saw profitability slightly eroded by recent interest rate rises. However, this trend is now starting to reverse as the housing market shows signs of recovery earlier this year. Toowoomba has proved a highly profitable market, with 99.5% of resales returning a nominal gain. The post-COVID-19 pandemic has normalized migration flows, with net migration to regional Australia slowed to under 30,000 through 2022. Higher interest rates, falling home values, and normalization in migration trends could lead to higher loss-making sales in the coming quarters.

In March 2023, Sydney experienced a 10.7% incidence of loss-making sales, the highest since August 2009. This was due to a decline in profitability in the unit sector, with only 82.5% of unit resales making a nominal gain. The highest concentrations were in Parramatta, Sydney, and Canterbury-Bankstown. CoreLogic estimates 63.1% of loss-making unit resales were owned by investors. Since March 2023, Sydney unit values have increased by 2.3%, suggesting higher nominal gains in the coming reporting period.

Portion of profit-making sales, rolling quarter

Summary of profit and loss-making sales by LGA region

In the March quarter, 89.8% of Melbourne resales made a nominal gain, down from 92% in the previous quarter. The reduction in profit-making sales was driven by the unit sector, with the City Council region accounting for 28.1% of loss-making unit resales. The house sector also saw a marginal decline from 98.4% in December 2022 to 97.6%.

Melbourne’s recovery trend includes a 1% lift in house and unit values between March 2023 and May 2023, with a positive result in June. However, Melbourne’s large share of investment homes and owner-occupier households with mortgages raises the risk of motivated selling, potentially leading to more resales through the second half of the year.

Portion of profit-making sales, rolling quarter

Summary of profit and loss-making sales by LGA region

In the March quarter, profit-making sales in Brisbane increased 20 basis points, with 95.7% of sales being driven by unit resales. Brisbane unit values have not seen much decline this cycle, with a peak-to-trough fall of -2.3% between July 2022 and January 2023. The dwelling market has seen a boost in home values since the end of March, with house values up 1.7% to the end of May and unit vales lifting 2.0%. This could reduce the incidence of loss-making sales in the June quarter.

Portion of profit-making sales, rolling quarter

Summary of profit and loss-making sales by LGA region

Adelaide experienced a 98.1% increase in profit-making sales in the March quarter, with the second-highest rate of nominal gains from resale, following Canberra. The housing segment saw a 99.2% gain, while unit resales made a median gain of 95.1%. The highest rates of profit-making sales were in Burnside, Mallala, and Norwood Payneham St Peters council. Adelaide sellers have seen a 43% increase in home values since March 2020, and strong profitability is expected in the June quarter.

Portion of profit-making sales, rolling quarter

 

Summary of profit and loss-making sales by LGA region

Perth’s profit-making sales rate remained the second-lowest in the capital city markets, with 86.2% of resales showing a nominal gain. The rate was 94.2% in the house segment and 64.4% in units, the second-largest discrepancy between houses and units. Perth dwelling values are expected to recover, with values rising 1.9% from March to May, potentially contributing to a recovery in sales through June.

Portion of profit-making sales, rolling quarter

Summary of profit and loss-making sales by LGA region

Hobart regained its position as the most profitable capital city market in March, with 99.0% of resales making a nominal gain. This is surprising given weak selling conditions and rising home values. Long-term growth and short downturn have kept profit-making sales high, with a median hold period of 9.1 years and a median gain of $342,000 from resale.

Portion of profit-making sales, rolling quarter

Summary of profit and loss-making sales by LGA region

Darwin’s capital city markets showed the lowest profitability rate in March, with 70.5% of sales making a nominal gain. The city had the highest concentration of loss-making sales and the largest median nominal loss from re-sales (-$64,636). Profit-making sales had a slightly longer hold period than loss-making sales, with an average initial purchase date of around June 2012. Darwin homes have relatively high rent yields, offering a unique investment opportunity with potential for positive cash flow from rental income.

Portion of profit-making sales, rolling quarter

Summary of profit and loss-making sales by LGA region

Canberra had the second-highest profit-making resales rate in capital city markets, with 98.1%, followed by Adelaide and Hobart. Both houses and units had a profit-making resale rate of at least 98%. Sellers are benefiting from recent upswing in home values, with dwelling values 34.6% higher over the past five years.

Portion of profit-making sales, rolling quarter

Summary of profit and loss-making sales by LGA region