The Australian locations where homeowners are selling at a loss

Loss-making resales of homes and investment properties held for less than three years are on the rise, indicating more stress in the marketplace amid high interest rates and the cost-of-living crisis. CoreLogic data shows that of the 86,000 resales during the third quarter of 2023, 6.6 percent were sold at a loss after less than three years of ownership. This is up from 3.6 percent in the September quarter of 2022 and represents a 10-year high, according to CoreLogic’s head of research, Eliza Owen.

Properties held for three years or less represented one in five of all loss-making resales, according to the report. These types of sales were seen in many markets across the country. However, the areas recording the highest portion of these sales were Melbourne–Inner at 4.1 percent, Melbourne–West at 3.7 percent and Sydney’s Central Coast at 3.6 percent. The median loss for these resales was $30,000.

Most of the loss-making resales among properties held for less than three years were houses, at 64.8 percent. Ms Owen said this was quite a different trend to all loss-making resales across all tenure periods. On that broader basis, more of the overall loss-making resales were apartments at 70.9 percent.

It is a commonly held view among property experts that real estate must be held over the long term to achieve strong capital growth. This is partly because property prices typically move in cycles that can take several years to complete. Property is also an asset class that involves high entry and exit costs such as stamp duty, legal fees, marketing costs and agents’ commissions. This makes selling after only short periods of ownership undesirable, indicating that those who are choosing to do this are likely to be experiencing financial stress.

During the second half of 2023, thousands of mortgages rolled over from fixed periods of two or three years at interest rates below 2 percent or 3 percent to variable rates of above 5 percent or 6 percent. Some of these sales may reflect the ‘mortgage cliff’ effect of this change. Looking ahead, Ms Owen pointed out that the Reserve Bank of Australia is forecasting unemployment to rise to 4.2% by the end of 2024 and “this will test serviceability, and may lead to an increase in motivated selling for mortgagors with high debt levels and low savings buffers”.

Ms Owen also emphasises that short-term loss-making resales make up only a small portion of the Australian housing market and this was not expected to change. “This is ultimately a small share of mortgagors, so the portion of short–term resales is not expected to grow substantially from where it is now. Ongoing increases in home values nationally should contain the rate of loss-making short–term resales, though capital growth conditions were looking weaker across Sydney and Melbourne to the end of [2023],” she said.

The Reserve Bank had little choice but to raise interest rates again this week.

Inflation was already proving stubborn before the latest Middle East instability added further pressure to energy prices and supply chains.

Housing inflation alone has averaged six per cent over the past year, remaining one of the single biggest contributors to CPI.

But while the focus remains on rates, the deeper problem is structural and far more dangerous.

Australia is not building enough homes, and the conditions required to fix that are deteriorating simultaneously.

Construction costs remain elevated. Builders are increasingly unwilling to absorb contract risk. Labour shortages persist.

Capital is becoming more expensive. And as borrowing capacity weakens and sentiment softens, fewer projects are becoming financially viable.

The result is a self-reinforcing cycle.

The RBA raises rates to fight inflation. Higher rates reduce development feasibility. Fewer projects start. Housing supply tightens further. Rents rise. Inflation persists. The RBA raises rates again.

The only long-term solution is supply, yet Australia remains nowhere near the National Housing Accord target of 240,000 new dwellings a year.

Completion continues to lag approvals, meaning many projects approved on paper are simply never making it out of the ground.

That gap matters enormously because housing is not just another sector of the economy.

Around two-thirds of Australian household wealth is tied to property, while the sector underpins millions of jobs and related industries. Weakness here quickly spreads beyond real estate.

We are already seeing signs of stress. Auction clearance rates in Sydney and Melbourne have softened, borrowing capacity has declined, and parts of the market are experiencing price corrections as confidence weakens.

At the same time, policymakers continue to debate tax measures such as changes to negative gearing and capital gains tax discounts, despite fears that such reforms could drive private capital out of the rental market at precisely the moment when supply is most constrained.

This is the paradox at the centre of Australia’s housing crisis.

Demand for property remains extraordinarily high, yet the economic conditions required to actually build new housing are worsening.

The Reserve Bank cannot solve that problem alone.

Monetary policy cannot accelerate planning approvals, reduce construction costs or create more tradies. It can only raise the cost of money until something eventually breaks.

And increasingly, that “something” looks like the development pipeline itself.

Paul Miron is the Co-Founder & Fund Manager of Msquared Capital.

The Australian locations where homeowners are selling at a loss

The portion of properties sold at a loss within three years of ownership has almost doubled in one year

Rising rates, construction inflation and shrinking investor confidence are pushing Australia deeper into a dangerous housing spiral that monetary policy alone cannot fix.