Australian Homeowners Grapple with Property Losses Amid Rising Interest Rates, but Market Resilience Prevails

According to a recent report by CoreLogic, a growing number of Australian homeowners are selling their properties at a loss, as rising interest rates begin to bite. Property reporter, Peter Hannam, in his article for The Guardian, shared that about one in six units were sold for less than the purchase price in the March quarter. Despite this, Australian house prices are bouncing back, highlighting the complexity and resilience of the housing market.

The data from CoreLogic reveals a continuing decline in the national proportion of resales with a nominal profit, dropping to 92.3% in the January-March period from 93.2% in the previous quarter. This marks the third consecutive quarter of declines. Unit sales were more susceptible to losses, with 15.4% of transactions resulting in a price less than the initial cost.

Eliza Owen, CoreLogic’s head of research, commented on the unusual trend, stating, “It’s unusual to see a sharper deterioration in profits through the March quarter, when prices were starting to stabilise. This could be linked to more short-term selling”.

Short-selling times are becoming more common. The percentage of resales of properties held for less than two years rose from 3.4% in March 2022 to 12.4% in the same quarter of 2023. Owen noted that such short selling periods are abnormal as hold periods typically increase during housing value downturns to avoid losses.

Yet, the resilience and variability of the Australian property market cannot be overlooked, as pointed out by Rowan Crosby in his article, “Why are Australian house prices bouncing back?”. Nerida Conisbee, Ray White Chief Economist, explained the reasons behind the property market’s tenacity, saying, “House prices are more sensitive to some things than others. There is a tendency to overemphasise one factor over another”.

Conisbee further clarified that it is a mistake to assume that the same factors will drive the prices up and down. As she put it, “While this happened a bit, the bounce back in population growth prevented a dramatic fall”.

The intricacies of local housing markets also play a significant role in price dynamics. “Different markets have different drivers. Cities like Perth are more sensitive to the commodities cycles, whereas Melbourne and Sydney move much more closely with interest rates,” said Conisbee.

Furthermore, Conisbee emphasized that housing markets are not as volatile as stock markets. The cost of transacting and the speed of sale and settlement make housing a less volatile investment. This, coupled with demographic changes and changes in the way people live and work, contribute significantly to market fluctuations.

In conclusion, the Australian property market is weathering a complex storm. On one hand, rising interest rates are pushing some homeowners to sell at a loss, especially those with short-term holdings. On the other hand, the market’s inherent resilience, shaped by a multitude of factors from population growth to localized drivers, is ensuring a steady bounce back in prices. As economists and policymakers continue to monitor these trends, understanding the intricate dance of these driving factors will be crucial in predicting future market movements.

References:

[1] Peter Hannam. “More Australian homeowners offloading properties at loss as interest rate rises take toll, new data shows.” The Guardian, March 2023. https://www.theguardian.com/australia-news/2023/jun/28/australian-homeowners-offloading-properties-at-loss-data-interest-rate-rises 

[2] Rowan Crosby. “Why are Australian house prices bouncing back?” Property Observer, June 2023. https://thepropertytribune.com.au/market-insights/why-are-australian-house-prices-bouncing-back/