Market peak has ‘come and gone’, report says
The latest from CoreLogic Pain and Gain Report revealed that the number of loss-making trades is on the rise, indicating that sellers in the three-month period ending in June may have missed their best window for maximum profits in the previous quarter.
After analyzing around 102,000 property resales that took place in the June 2022 quarter, the data showed for-profit sales plateaued at 93.8% from the previous three months.
The latest quarterly numbers are down three months from April, when the share of homeowners profiting from resales was 94.1%, coinciding with the national home value hitting its highest level in course of the year.
During the June quarter, the median nominal gain on resales nationwide was $270,000, while median losses were -$33,500.
CoreLogic’s head of research, Eliza Owen, said the latest report served as a “line in the sand” on when the housing market peaked and started to turn.
The expert noted that April’s spike for profitable resales and national home values was the first of several strong, back-to-back rate hikes.
“The figures match the peak growth of our National Home Value Index and highlight the decline in the rate of for-profit sales, which was largely influenced by an increase in the rate of resales at a loss in Sydney and Melbourne. “said Ms Owen. declared.
Sydney’s loss sales rate rose 160 basis points to 6.4%, coinciding with a quarterly decline in home values of 2.8% in the NSW capital during the period.
Meanwhile, the percentage of resales of loss-making properties in Melbourne rose by 50 basis points in the quarter to 5.3%, occurring simultaneously with a 1.8% drop in prices in the Victorian capital during of the period considered.
According to Ms Owen, the Reserve Bank’s recent monetary policy tightening – which pushed the official exchange rate up to 2.35% following a five-month aggregate rate hike cycle launched in May – led to a weakening of home values in Sydney and Melbourne.
But she pointed out that there are still bright spots in the market, as residential resale results in some cities remain strong with significant gains in almost all resales.
Based on the recent decline in home values through the end of August, Ms Owen expects the rate of for-profit sales to continue to fall from its record high in the months coming.
It also expects overall home values to decline in coming quarters to limit sellers’ profitability.
“As rates continue to rise, it is likely that the for-profit sales rate will continue to decline over the coming quarters,” she predicted.
Small caps earn big on resale
The report isn’t entirely bad news for resellers, with strong resale figures remaining the norm in smaller capitals including Canberra, Hobart and resource towns.
Hobart and Canberra lead the capitals in for-profit sales rate, with nearly 100% of resales in both cities registering a nominal gain over the period.
Notably, the Tasmanian capital has recorded four consecutive years of sellers registering the highest nominal rate of gain in major capital markets.
Meanwhile, regional markets continue to see an increase in successful resales. The resale rate of regional properties posting losses in the June quarter continued its downward trend, dropping 30 basis points to 5.4% from March.
The numbers are one of the weakest spells of loss resales in the three months to April 2008.
Ms Owen said the rise in for-profit transactions in regional markets coincided with rising home values in the regions in the June quarter – bucking the downward trend across the country.
However, she also noted that regions have since followed capital markets in a relatively sharp downturn in the housing market.
In July and August, the value of regional Australian homes fell 2.2% from a peak in June, which should weigh on the regions’ profitability going forward, according to Ms Owen.
Meanwhile, the tree change and sea change markets continue to benefit from increased profitability, with only 1.9% of resales in coastal and non-coastal lifestyle areas registering a nominal loss during the of the June quarter. The numbers are down from 2.3% in the three months to March 2022.
Ms Owen said this marked an all time high for the rate of resales signaling a loss for the combined tree change and sea change markets.
“There were slight increases in the rate of loss sales in Geelong, the Gold Coast, Tweed and the Coast, but those increases were marginal,” she said.
She said the change in trend in profitability was expected given that the same markets were driving the sharp drop in value across regional Australia.
Houses v units
Home resales across the country saw a higher number of profit-making transactions (96.5%) than units (88.31%) during the quarter, according to CoreLogic.
The rate of return for both sectors declined quarter on quarter, but the report notes that units saw a steeper decline of 70 basis points compared to the housing market’s 10 basis point decline over the past quarter. period.
During the period, median gains on the resale of homes were $370,000, compared to $173,000 for units.
Ms. Owen attributed the strong returns in the real estate market to several factors, including the value associated with land, as well as strong homeowner demand for single-detached units during the pandemic.
During the quarter, investors banked from 90.9% of resales, below the 96.7% for homeowners.
According to Ms Owen, an increase in apartment construction activity between 2012 and 2017 was one of the factors contributing to the decline in the rate of return on unit sales, particularly in Sydney, Melbourne and Brisbane. .
She further explained the downward trend, saying that macroprudential changes in investment and interest-only lending conditions triggered a drop in investment demand for the units between 2014 and 2017.
This turn of events, the expert said, was compounded by nominal losses in downtown markets where the majority of unit development had been concentrated.
In Sydney, for example, Ms. Owen noted that the rise in the rate of loss-making unit sales was likely due to an increase in investor shares being sold.
“Resale data suggests a notable increase in loss-making unit sales across the Sydney council area, including in high-density outlying markets like Waterloo, Zetland and Roseberry,” the surveyor said.
The sharp drop in home values in Melbourne has impacted the number of for-profit sales, particularly in the inner city, where more than a third of resales have been sold for a nominal loss.
“Rising rates may trigger more sell decisions among investors, contributing to increased sales of loss-making units across the city,” she said.
Longer holding periods resulting in larger profits
The report also noted that longer holding periods were also generally associated with higher profits. For example, data showed that owners who divested after 30 years earned an average return of over $800,000.
Nationally, the median holding period for for-profit resales stood at nine years in the last quarter, which placed the original purchase date in the June quarter of 2013.
As Australian property values weather the recession, Ms Owen expects median holding periods to increase as more recent buyers are less likely to sell in a downturn.
“The most recent housing market recovery, which took place between September 2020 and April 2022, saw a 28.6% total increase in national housing values,” she said.
While the holiday season has led to substantial gains in relatively short holding periods, Ms Owen expects dealers will not see the same results as the market continues to weaken.
“During the March 2022 quarter, sellers who sold after only two years had a median gain of approximately $170,000. However, by the end of June, that median nominal gain realized within two years of purchase had fallen to $150,000,” she said.