An Increasing Number of Australians Selling Homes in Less Than Two Years, Signaling Mortgage Distress

Introduction

An increasing number of Australians are selling their homes within a short period of time, many of them at a loss. Analysts view this trend as an early indication of mortgage distress. CoreLogic, a leading property data and analytics company, has reported an “unusual” rise in the proportion of people selling their homes after a brief ownership period. This trend is concerning because homeowners typically avoid selling at a loss, suggesting that rising interest rates may be forcing some individuals to sell their properties.

Unusual Increase in Short-Term Home Sales

According to CoreLogic’s Pain and Gain report, which analyzes the profitability of home resales, there has been a notable increase in the proportion of homes sold after a short holding period. This is a departure from the typical pattern observed during market declines, where homeowners tend to hold onto their properties for longer periods. The data reveals that 8.4% of resales during the first quarter of this year were owned for less than two years, compared to 5.8% in the previous quarter of 2021. Additionally, the proportion of loss-making resales held for less than two years tripled from 3% in the last quarter of 2021 to 12.4% in the most recent data from the March quarter.

Potential Causes of Short-Term Sales

Analysts believe that the increase in short-term home sales may be attributed to rising interest rates, which could be making it financially challenging for some homeowners to continue holding their properties. Many individuals are choosing to sell their homes preemptively to avoid potential mortgage difficulties in the future. Reports from friends, contacts, and social media also support this narrative, where homeowners are selling investment properties or their primary residences because they anticipate future financial strain.

Selling Homes at a Loss

CoreLogic’s data may underestimate the true proportion of recent buyers selling at a loss, as it does not take into account additional costs such as taxes, mortgage fees, agent charges, marketing expenses, and moving expenses. These transaction costs can significantly impact the net profits of those who made gains, making them relatively small. It is important to consider these additional expenses when evaluating the financial implications of selling a property.

Limited Increase in Listings Activity

Despite the increase in short-term sales, property analysts have not observed a significant surge in listings activity. Sellers tend to hold back during market downturns, as they prefer not to sell their properties at a time when prices are falling. While there has been a modest uptick in recent buyers selling their homes, it is likely due to individuals capitalizing on renovations or facing challenges with rising mortgage rates. However, there is currently no evidence of panic selling in the market.

The Mortgage Cliff and Potential Economic Factors

Analyst Louis Christopher from SQM Research warns that the mortgage cliff, where individuals on fixed-rate mortgages transition to higher variable rates, is only halfway through. If an economic slowdown occurs and leads to widespread job losses, the situation could worsen. A rise in unemployment due to a recession could result in more individuals selling their homes within a short period. However, at present, there is no significant increase in distressed selling activity.

Conclusion

The increasing number of Australians selling their homes within a short period, often at a loss, is a concerning trend that may indicate mortgage distress. Rising interest rates are likely forcing some homeowners to sell preemptively to avoid potential financial difficulties in the future. While the market has seen an uptick in short-term sales, the overall listings activity remains relatively stable. The mortgage cliff and potential economic factors could exacerbate the situation, leading to more individuals selling their homes quickly. Monitoring these trends and their impact on the housing market will be crucial in understanding the broader implications for Australian homeowners.

Keywords: buying and selling houses in Australian