Short-term loss-making resales on the rise

⚡️ Highlights:

Here are the top 5 takeaways from the article:

1. Profitability in Australian home resales has increased for the first time in a year, with 92.8% of resales making a profit. This is a 40 basis points increase from the previous quarter.

2. However, the portion of loss-making short-term resales has increased to 9.7%, up from 2.7% a year ago. This suggests that more sellers are willing to incur a loss, potentially due to high interest rates.

3. The median loss for short-term, loss-making resales held for up to two years was $30,000, compared to a median profit of $75,000 for nominal gains within the same hold period. Houses made up 66% of these resales, and 63.3% were in capital cities.

4. Short-term resales in regional Australia have seen a rise, with 11.1% of overall regional resales occurring within two years. This suggests that people may be selling up after a short stint of living in remote regional or lifestyle areas. However, the regions remained profitable for sellers, with 91.9% of homes held for up to two years making a nominal gain from resale.

5. Both houses and units saw an increase in profit-making sales nationally. Only 3.5% of house sales made a nominal loss, while 14.4% of unit resales made a nominal loss. However, the rate of loss-making resales declined for units, narrowing the gap between houses and units in terms of loss-making sales.

Overall, profitability is expected to rise with home values, and the rate of profit-making sales is likely to increase in the future.

1. Impact of Interest Rates on Short-Term Resales

High interest rates can have a significant impact on the property market, particularly on short-term resales. When interest rates rise, the cost of borrowing increases, which can deter new buyers and put financial strain on existing homeowners. This could lead to a situation where more sellers are willing to incur a loss just to offload the property, as indicated by the increase in loss-making short-term resales to 9.7%.

Key Considerations:

  • Mortgage Stress: Homeowners may find it challenging to meet mortgage repayments, leading to forced sales.
  • Investor Behavior: High interest rates could discourage property investment, reducing demand and potentially lowering property values.

2. Regional Trends in Short-Term Resales

The report highlights an unusually high portion of short-term resales in regional Australia. This could be indicative of a “trial and error” approach by people who moved to regional areas for lifestyle changes but found it not to their liking or not as profitable as anticipated.

Key Considerations:

  • Lifestyle vs Reality: The romantic notion of a “tree change” or “sea change” may not meet practical expectations, leading to quick resales.
  • Investment Risks: Investing in regional areas may carry higher risks, especially if the investor is not familiar with the local market conditions.

3. Profitability Outlook with Rising Home Values

The report suggests that as home values continue to rise, the level of profitability from resales is also expected to increase. This is a positive indicator for both homeowners and investors looking for capital growth.

Key Considerations:

  • Market Timing: Buying and selling at the right time can significantly impact profitability.
  • Location Factors: Areas with strong growth potential are more likely to contribute to profitability in resales.

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