Growing numbers of pandemic-era buyers are choosing to sell their properties at a loss rather than keep up with ballooning mortgage repayments in what could be an early sign of forced selling to come.
In the March quarter, 5.5 per cent of all loss-making sales were held for less than a year, more than double the 2 per cent share recorded last year, figures from data provider CoreLogic revealed on Tuesday.
During the same period, the share of loss-making sales for homes resold within two years has more than tripled to 12.4 per cent from a year ago and the trend could continue as later interest rate rises hit buyers, CoreLogic head of research Eliza Owen said.
The share of properties resold within two years has increased as servicing a mortgage becomes difficult for some home owners. Eddie Jim
“There may be some motivated selling reflected in the next few quarters, where property owners willingly sell at a loss to avoid rising mortgage interest rates,” Ms Owen said.
“I think given further rate hikes that we’ve seen in May and June with the potential for further rate hikes in July and August, we might see a bit more pain reflected in loss-making sales, even though property values have started to improve.”
The effect of rising borrowing costs is hitting buyers, particularly those who bought late in the cycle and who have little equity in their homes to tap. CoreLogic estimates that monthly variable home loan payments on a $500,000 loan have increased about $1030 for owner-occupiers, and $1050 for investors between April last year and June this year.
“Some buyers may choose to sell their home before values have made a nominal gain if rising rates have made servicing a mortgage on the property particularly difficult,” Ms Owen said.
CoreLogic’s latest Pain & Gain report also shows the portion of properties resold within two years rose to 8.4 per cent in the March quarter, up from 7.9 per cent in the previous three months, despite nominal returns falling by $21,000 to $73,000 during the same period.
“There’s an unusually high proportion of people selling within a short period of time despite incurring a loss. I think it’s safe to say that this could be an early indication of people buckling under higher interest costs,” Ms Owen said.
“So what we’re starting to see in the market is a result of property holders finally feeling the pinch and are choosing to incur a loss from resale in order to avoid particularly high mortgage repayments in the current rate-hiking environment.”
The weight of rapid interest rate rises had also dented the overall profitability of Australian homes during the March quarter. Total resale profits dropped to $22.7 billion, down from $25.9 billion in the previous quarter, and nearly half of the $40 billion notched up in the December quarter of 2021.
Of the 76,000 resales analysed, 92.3 per cent were profitable, down from 93.2 per cent in the previous quarter.
This marks the third consecutive quarter of falling profitability, and coincides with ongoing declines in national home values.
Across the capital city markets, Sydney, Melbourne, Perth and Darwin racked up the largest increase in the share of loss-making sales during the March quarter.
Nearly one in three sales in Darwin made a loss, while Sydney’s loss-making sales jumped by 1.9 percentage points to 10.7 per cent, which is the highest level since the three months to August 2009.
Loss-making sales rose by 2.2 percentage points to 10.2 per cent in Melbourne and lifted by half a percentage point to 13.8 per cent in Perth.
Hobart, Adelaide and Canberra were more lucrative for vendors, with nearly all resales made at a profit during the March quarter.
All properties sold in Macedon Ranges and Nillumbik in Victoria, as well as those in Burnside, Mallala and Norwood Payneham in South Australia, delivered a profit. Similarly, every property sold in Brighton, Clarence and Sorell in Tasmania was profitable.
By contrast, 46.6 per cent of all sales in Melbourne and more than 30 per cent of all homes sold in Strathfield, Botany Bay and Burwood in Sydney made a loss.
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