Reselling of recently purchased homes may indicate early mortgage difficulties

Analysts warn that an increasing number of Australians selling homes owned for less than two years, often at a loss, could indicate early mortgage distress.

According to CoreLogic’s Pain and Gain report, which examines the profitability of home resales, data shows that an increasing number of Australians are selling their homes at a loss within a short ownership period.

Despite a 6.5% decline in overall home resales during the first quarter of this year compared to the previous year, CoreLogic’s Eliza Owen observed an unusual trend in the data.

Eliza Owen, speaking to ABC News, highlighted a notable rise in the percentage of individuals selling their homes after a relatively short period of ownership.

Significantly, a noteworthy number of individuals are opting to sell their homes at a loss during this time.

Typically, in this type of resale analysis, we observe an opposite trend where the hold periods tend to extend as the market experiences declines.

Furthermore, the percentage of resales resulting in losses, which were held for less than two years, surged significantly from a mere 3 percent in the December quarter of 2021 to 12.4 percent in the latest data recorded in the March quarter.

According to Ms. Owen, the data provides supporting evidence to anecdotes she has come across through friends, contacts, and social media, where some property owners are opting to sell preemptively to avoid potential future obligations or circumstances.

According to her, “From the anecdotes I’ve come across, there are situations where individuals are selling their investment properties or choosing to sell their own homes due to financial limitations. They are finding it challenging to meet their mortgage payments or foresee difficulties in doing so within the next 12 months or when their fixed rate period ends.”

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Additionally, Ms. Owen noted that her data fails to fully capture the actual percentage of recent buyers who are currently selling their properties at a loss. This is because the data does not account for additional expenses such as taxes, mortgage fees, agent charges, marketing expenses, and moving costs.

She further explained, “Moreover, the analysis does not take into account any expenses related to property acquisition, such as stamp duty. Consequently, even for those who have realized gains, the net profits are expected to be relatively moderate in size.”

Louis Christopher, a fellow property analyst overseeing SQM research, concurred that only a small number of individuals would be motivated to sell amidst a declining market unless they were compelled to do so.

He observed, “There is not a notable increase in the level of listings activity at the moment. Sellers, in general, have been cautious and hesitant to sell during downturns.”

Mr. Christopher has also noticed a slight increase in the number of recent buyers selling their properties. He speculates that this can be attributed to two factors: individuals who are capitalizing on the value gained from renovations and those who are facing difficulties due to the rise in mortgage rates. However, he has not observed any indications of panic selling thus far.

“We closely monitor distressed selling activity, and currently, we have not observed a significant increase in such cases,” he stated.

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