1 in 8 homes sold for a loss in March QTR

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By Leith van Onselen

RP Data has today released its Pain & Gain Report for the March quarter of 2013, which reveals that 12.7% of all home which sold over the three months to March 2013 incurred a gross loss. This compares with a peak of 13.1% of re-sales recording a loss over the three months ending January 2013 (see next chart).

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According to the Media Release:

RP Data recorded 58,677 residential property re-sales nationally over the first quarter, of these, 12.7 per cent recorded a gross loss from the original purchase price. The gross value of the losses associated with these loss making re-sales totalled $463.9 million over the quarter. Conversely, 87.3 per cent of all March quarter re-sales recorded a gross profit relative to their original purchase price. The gross profit from these re-sales equated to $9.6 billion.

Units in lifestyle locations such as Queensland’s Gold Coast region experienced the largest re-sale losses, with 37.1 per cent of all March quarter re-sales in the area transacting at aprice lower than what the home was purchased for…

Mr Lawless said, “The likelihood of making a gross profit or loss is quite different based on the length of time a property has been owned. As a stark example, those homes that were previously purchased prior to January 1st, 2008 (pre-GFC) and were subsequently soldduring the March quarter of this year, only 8 per cent of re-sales were made at a gross loss.

“For those homes that were purchased on, or after January 1st 2008, the propensity to make a loss on the sale climbs substantially. Of those homes that sold over the March quarter, 25 per cent recorded a gross loss relative to the previous purchase price,” he said.

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Mr Lawless’ findings further illustrate that for re-sales that incurred a gross loss over the March quarter, their average length of ownership was just 4.8 years. Properties that recorded a gross profit were held for an average of 9.7 years, while those homes that recorded a gross profit of more than 100 per cent were owned for an average of 15.4 years.

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A word of caution. It appears that RP Data’s results do not include costs associated with buying/selling housing, such as stamp duty and real estate agent’s commissions, which typically add up to tens of thousands of dollars, or the cost of home renovations. Therefore, it is likely that the loss figures quoted by RP Data are significantly understated.

Media Release below.

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RP Data Pain & Gain Report (Q1 2013)

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Comments

  1. So what estimate of homes with all that extra data that RPData didn’t include be,

    would it be fair to say that %25 of all homes are now making a loss, it could it even be higher, is it possible for someone to do an average on these figures to figure it out ?

    • It would have been do-able to add the vile Stamp Duty into RP Data calculations. That extra ~five per cent alone would have shrunk the post-2008 cohort making a sub-ten per cent profit. Add on agent commission, mortgage fees and tidy up for sale cost and I warrant none of the sub-10 per cent are ahead.

      So, 57 per cent of all those who bought post-Jan 2008 and sold, have lost on these very broad sums. Given mortgage costs etc etc vastly exceeded rents, the net losses are staggering.

      Meanwhile, land prices are yet to begin their revert to mean.

      Don’t Buy Now!

      • tsport100MEMBER

        Shows the bias of this ‘report’ that they have a 0-100% scale for profits but no scale at all for losses!

      • I assume these are all nominal prices so dont take into account inflation and errosion of purchasing power.

        As with all investments one must also consider opportunity cost. What alternative investments could u have put your money into during the period of holding real estate and what COULD you have made?

      • Wow… just, wow!

        It’s easy to forget about these costs (+ inflation adjusted and opportunity as mentioned below), even to those of us who should know better.

        …wow!

        +100

  2. I would love to see what the stats for the US, Spain, Ireland etc… have looked like over the past few years.

    As a potential FHB I am not seeing any big discounting yet, then again I am in Sydney and as the epicentre of real-estate wankery things are different here.

  3. More shocking is the pre-2008 buyers making 100%+ profit on sale of their house? (43%)

    • It all depend on how long they have purchased for? Pre-2008 means at least 5 years but could be 50.

      If we assume the average ownership of 20 years than it is about 3.5% compounding growth.

    • arescarti42MEMBER

      It’s not that surprising really. The average holding time for those properties was 15.4 years, or on average they were bought around 1997.

      That’s just before the beginning of the current ginormous debt bubble.

    • Yeah, plenty of houses have doubled in price, but this “gross profit” includes inflation.

      It’s like saying if you bought a can of coke for its price of 70c in 1990 and sold it today (it now costs about $2.20) you would have made over 200% profit. But in real terms you still only have enough cash to buy one can of coke.

      Real estate spruikers always avoid mentioning inflation when telling you about what your home will be worth in future. It might be worth more dollars, but each dollar will be worth a lot less.

      • Exactly.

        And since “opportunity cost” is usually above inflation, the discount rate on nominal values is actually higher than people realize.

  4. reusachtigeMEMBER

    This is one of the more interesting releases to come out of RPData. It’s a telling story. And as you say, there are so many more costs associated with this that aren’t accounted for, including interest costs, and inflation, so the real losses would be much bigger and more widespread. And it’s only early days.

  5. Well in the midst of jobs moving overseas, rising unemployment and the end of a the boom in commodity pricing, we get to see a small bright light of good economic news.

  6. I would put the amount of loss making sales purchased post Jan 08 in my area at approx 95%. My guess is that would cover 90% of the Sunshine Coast.

  7. Yeah, the current prices in Sydney are ridiculous. Just bought my first home and it was hard, property prices are increasing by the day, so I was lucky to get in before they go even higher. I expect by the end of the year my property will go up by 100k+.

    With so many buyers in the market all competing and driving prices up, we have truly hit a sellers market.

    • Sounds like a bubble to me, “housebuyer”. Probably not a great time to jump into the market. Good luck to you though.

    • reusachtigeMEMBER

      Thanks for that news, you’ve convinced me I better get in now or forever be priced out. Cheers!

    • You bought your own home. It shouldn’t matter one iota whether it goes up by $100k or down by $200k.

      Keep this in mind should (when) prices fall or stagnate.

      Looking from a big picture “city” level I’d question whether anyone buying in this market is lucky…. but best of luck to you anyway

    • Well, it’s better than paying roughly the same in rent, so I am quite happy with my purchase. And true, I intend to live there, but still, it will be nice to sell it for a nice premium in 5-10 years when I do move.

      What are you guys talking about anyway, property prices only ever go up, and we haven’t seen them increase much over the past 4 years. The stagnation period is now over. Now they started rising again, so it’s a great time to jump in, right at the beginning of the current price hike. What will happen is prices will skyrocket this year due to the high demand and low supply, then (when interest rates start going up a bit), they will stagnate for a bit or even fall a little and then there will be the next price hike. Look at the market over the past 30 years, it always rises, keeps steady, then rises again. If you ever expect the 500k-1.5m housing sector to drop, you will be waiting for the rest of your life.

      You guys sound like those people 5 years ago who were waiting for the “inevitable” price decrease for houses. Didn’t even happen during the downturn, so I doubt it will ever happen, unless you’re after 5m+ properties.

      • Housebuyer, do you drive a car looking in the rear view mirror? I hope not.

        Personal debt to GDP has gone from 40% to 160%, almost all this additional debt went into real estate. Massive supply of money, limited supply of new stock, guess what price did?

        For the historical price performance to be repeated we need to move to 560%, we’d be more bust than Greece doubled!!

        I wish you the best but as a fellow home owner I am expecting nothing much other than inflation if I’m lucky in the next 10 years.

        If unemployment gets above 7-8%, get ready for some losses.

        We are in a bubble. I just hope it deflates slowly instead of bursting.

  8. But no-one sells at a loss – they just hold on until prices rise again. I know that because the spruikers are constantly telling me so.

  9. Yes willy_nilly I agree, I aslo work on the Sunshine Coast. Think we have hit the bottom now and in recovery phase.
    The other factor is renovation costs and cost of owning not taken in account of these statistics. Depends on the area but prices back to around 2003 levels

    • BubbleyMEMBER

      Nooo, I don’t think so.

      I arrived on the Sunshine coast in 2001 and unemployment at the time was officially 11%, unofficially it was 17%.

      If we head into the recession we ought to have bottom will be a long way off.

      I still keep an eye on the old stomping grounds of Cotton Tree and Mooloolaba. It is true that prices have stabilised in the last 6 months, however I am seeing more distressed sellers/over committed/circumstances have changed advertisements than ever before.

      • Don’t forget that auction clearance rates, stock availability and time on market don’t look pretty either.

        I’m considering a move back to QLD in the next couple of years and I’m holding out for far, far more downside right now. The only condition, of course, is that it needs to far faster than Melbourne to benefit. SC and GC both look shagged for now to be honest.

        You’re right that vendors are holding on by the finger nails in some cases – I wish I had a dollar for every house advert titled “Vendors say sell” or “Owners want to sell.”

        I’m going to nuke some popcorn and watch it unfold for at least another 12 months before I act – assuming any continued weakening in the market doesn’t bite me in that time!

    • what is this – an MB Sunshine Coast convention? 😀

      (yes I’m up here too – maybe we should have a coffee night or some such soon – flawse (Bill) to pick the spot?)

    • McPaddyMEMBER

      … maintenance, insurance, rates, cost of capital and/or premium of finance cost over average rental cost of equivalent property … liquidity cost … emotional pain and suffering (of being forced to sell your home at a loss) … the list goes on really. Oh, but at least you get to talk about the property that you “own” to your mates. We really are a nation of muppets.

      • It’s been pointed out that “institutional” involvement in housing “investment” is very low, it is mostly ignorant individuals doing it based on “round the barbie” myths…..

  10. My simple sums tell me the average loss is about $62,000 on all those houses sold in Q1. Add $20k stamp duty (at a minimum) and its $82,000. That’s a lot of loss for an average house.
    Would be interesting to see purchase year by year what losses are.

    • thomickersMEMBER

      the funny thing is that as housing CGT receipts shrink, federal tax revenues also take a hit.

      I hope treasury is forecasting declining CGT receipts in their modelling

      • Fat chance. The “long-necked bird” will be slapping them down for “talking down the economy” if they did that.

  11. I agree this report paints a rosier picture than what is reality.
    As an example, I bought a house in March 2008 for $402k, and sold it in March 2013 for $415k. This report above would have me in the 0%-10% profit category ($13k profit on $402k purchase).
    As people have stated previously in this post, the other costs not factored in were:
    Stamp Duty + Mortgage fees: $19k
    Renovations: $8k
    Selling Fees: $6k
    So in reality I’ve made a $20k loss.

    • reusachtigeMEMBER

      How much interest did you pay as rent for the money given to you by the bank (assuming you had a loan)?

      • Yep.

        “Rent vs Buy” is in reality a
        “Rent the Property” vs “Rent the Money” question for most people.

        Even those who can buy a place up front in cash still pay an “opportunity cost” rent on the money they choose to tie up.

      • McPaddyMEMBER

        Not forgetting plain old maintenance, rates and insurance costs. They add up. As a reluctant landlord (in one of the markets that’s blown up – you can guess which) I’m painfully aware of these costs. At least you’re aware of the reality CJ. Most people in your situation would consider themselves to have dodged a bullet.

  12. There’s also no way of knowing what capex has been spent on improving the properties – something that is generally ignored when talking about house prices.

    This is the likely explanation for many in the 50%+ “profit” bracket.

    It’s also an interesting issue in a wider context – how much of our property price rises in the past can be explained by what appears to be our love affair with home renovations?

    • If recent experience in Canberra is anything to go by (anecdotally) – big renos are lucky to break even.

      So our house’s sticker price rises, but you’re no richer – in fact you might well be poorer, if you count time and hassle.

      But on the upside, you can pretend you’re on The Block, just without all the free tradesmen, free product placements and expert help off-camera.

      • If you read Capital Appreciation’s good work, there are alot of high end properties sellers in Canberra hurting at the moment. Even KRudd is not immune; his house is going for $75k more than what they paid in 2010. $140k in stamp duty, agents commissions and you have a sizeable loss – not that that matters to much to them. There is one winner though; the selling agent is having two cracks at selling the property in three years.

    • JohnsonMMEMBER

      Yeah I love how little that cost is ever considered. People talk of property price rises like all that happens is they sit and hold.

      I bought a place back in 2005ish for $150k and spent $60k renovating it. I sold it for $250k about 3 years later. I worked out I didn’t make a cent from the property (after agents, stamp duty etc.).

      Not saying I did a great job of it – i know i bunged things up and could definitely do it better next time with the lessons I learned etc. But the point is that the superficial view would say ‘what a success, 66% profit in 3 years!’ where in reality I didn’t even make a dollar.

  13. Mining BoganMEMBER

    LOL

    I’ve come in after a day playing in the sunshine and I’ve found a place of joy.

    The nerds have had a good day. Excellent work.

    🙂

  14. A colleague at work sold his house recently for $1M that he bought for $720K about 6 years ago. Didn’t spend a single cent on renovations, just some minor maintenance work. Everyone in the office made a big fuss about the magnificent profit that he made and how you can’t go wrong with bricks ‘n mortar. A great example of a young man in his late twenties making fine investment decisions… so they all thought.

    Secretly, he admitted to me that he had borrowed 90% of the purchase price and the sheer size of the mortgage was cramping his lifestyle (hence the sale). He worked out roughly that, at best, he broke even – but he wouldn’t be surprised if he had made a loss. Most likely he would have been in a similar position if he had rented all that time.

    Enjoying the praises he was getting from all around and ashamed of the reality of it all, he could not but help perpetuate the myths around home ownership and property investment.