Almost 90% of Australian homes sold during the second quarter of 2018 generated a re-sale gross profit of $15bn, according to the latest CoreLogic Pain and Gain Report that analysed homes resold over the June quarter.
The report, which determined whether a property resold at a gross profit or a gross loss, also revealed that the share of re-sales at a profit hit their lowest point since October 2013, with 10.2% of residential properties resold at a price lower than the prior purchase price and generating a total realised gross re-sale loss of $469.4m.
The 89.8% profit-making resales over the June quarter dropped from 90.1% at the end of the last quarter, and were down from 91.1% over the second quarter of 2017. Loss-making resales went up over the June 2018 quarter compared to the March 2018 quarter in all capital cities.
Sydney generated 32% of Australia’s total $15bn re-sale profit, while Melbourne contributed 27.4%. Across the combined capital cities and combined regional markets, 91.5% of houses and 85.2% of units scored gross profit resale.
“Houses consistently record a higher proportion of resales at a profit than units. This may be attributed to the underlying land value of detached houses, which is a significant part of the overall value,” CoreLogic head of research Tim Lawless said in a statement. “Capital city properties being resold remain more likely to sell for a profit than those in regional markets but over the past three months the gap has narrowed.”
Investor versus owner-occupier
Over the quarter, 9.8% of owner occupied properties sold at a loss compared to 10.1% of investor owned properties. Sydney, Regional NSW, and Hobart were the only regions that had a higher proportion of investors who resold their property at a loss than owner-occupiers.
Melbourne investors were three times more likely to resell their property at a loss than owner-occupiers, while Canberra investors were 3.4 times more likely to sell for a loss. In the regional setting, 11.9% of investors were likely to resell a property for a loss compared to 11.7% of owner-occupiers.
“If home values fall, investors (who have until recently been increasingly active in the housing market) may be more inclined to sell at a loss and offset those losses, which could result in increased supply at a time when housing demand is falling due to declining values,” Lawless said.
Regional market improves
Some coastal markets and areas close to capital cities such as Sydney, Melbourne, and Brisbane drive most of the regional market’s strength. Major mining regions are showing firming signs of possible improvement in housing market conditions despite sales volumes in many of the regions had hit bottom. For major coastal regional markets, half saw their share of loss-making resales increase over the quarter.
Houses versus units
Unit resales are dominant in many regions; although some have recorded a fairly high proportion of loss while others are encountering minimal loss. Out of the 71.3% unit resales in Sydney and the Inner South, 3.1% were at a loss.
In all capital cities, the proportion of houses reselling at gross profit was lower during the June quarter, except for Canberra. For capital city units, the share of profit-making resales was lower during the quarter except for Brisbane.
In the regional market, the proportion of houses reselling for a profit went up over the quarter in Regional NSW, Regional Vic, Regional Tas and Regional NT, while profit-making resales on units increased in Regional Vic and Regional Tas.
Units in Melbourne were nine times more likely to resell at a loss than houses. Units in Brisbane were seven times more likely, and in Canberra it was 12 times.
According to Lawless, a number of “regions are seeing historically high levels of new unit construction”, and once the new unit stocks are completed, they could further weaken the resales of established housing stock.
Home values decline
Driven by the overly populated market of Sydney and Melbourne, home value index continues to show decline across capital cities, according to the August CoreLogic Hedonic Home Value Index. This marks the 11th consecutive monthly drop in the index. Decline in house values have dropped more than 2.5% from their peak last year, while apartment values fell by 1.7% from peak.
National house values are expected to fall by 1.6% in 2018 following the 9.5% gain last year, and this will be driven by the forecast fall in Sydney values of 5.1% this year. According to the report, the sustained regulatory action “is bearing fruit”. The action includes "limits on new bank lending exposure to the local property market and higher borrowing costs, especially for investors who tend to carry higher leverage".
“While other cities are not enduring the same degree of slowdown as Sydney, there is across-the-board slowing in 2018 compared with 2017, a reflection of tight credit conditions,” the report said.