RP Data has today released its Pain & Gain Report for the June quarter of 2013, which reveals that 12.0% of all home which sold over the three months to June 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).
According to the report:
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…there were 69,390 residential property re-sales. Of these, 12 per cent (with a majority located in lifestyle regions), recorded a gross loss based on their original purchase price and amounted to losses of $530.7 million. On the up side, the remaining 88 per cent of all June quarter resales made a gross profit which amounted to $12.1 billion.
RP Data research analyst Cameron Kusher said that largest proportion of the losses were found in the lifestyle markets such as on Queensland’s Gold Coast with units suffering the greatest losses; 35.3 per cent of all June quarter resales transacted at a price lower than what the home was purchased for.
Regional areas around resource-driven nodes and agricultural areas showed the strongest resale conditions with Queensland’s Central West, Victoria’s Barwon & Central Highlands regions, and Perth all recording fewer than 6.0 per cent of June quarter transaction losses.
Cameron Kusher said that the likelihood of making a gross profit or loss is quite different and it is based on the length of time a property has been owned.
“As a stark example, homes that were purchased prior to 1st January, 2007 (pre GFC) and were then sold during the June quarter of this particular year, only 7.2 per cent of resales made at a gross loss. However, for homes purchased on or after this date, the propensity to make a loss on the sale climbed substantially.
“If you look at those properties which sold at a loss over the quarter they had an average hold period of just 5.0 years. This highlights the long-term nature of investment in residential property and that if you chase short-term profits you are likely to be more susceptible to losses,” Mr Kusher said.
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, the loss figures quoted by RP Data may be significantly understated.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
