It's inverted. Yes, just like in American TV shows.
We buy a house, stay in it for a while, then resell it.
And we're not good at it.
Indeed, that is the professional conclusion I have come to after pondering the wealth of new data produced this week by Eliza Owen and CoreLogic.
Eliza says short-term resales are a new trend in Australia's distorted property market.
Aside from rising rents due to a structural housing shortage, record interest rate hikes, and the resulting somewhat bizarre rally in most urban housing markets, short-term resales are the new major housing market trend for the second half of 2023 in Eliza.
Eliza's ruthless analysis of the latest data has revealed that around 16% of new properties offered for sale on the property market during the cold, dark Australian winter were… owned.
Hey, we're not flipping burgers here. This is not a TV show. So three years is not a long time. This is a short turnaround. And there's a good reason why this volume of flips is twice as much as Eliza or CoreLogic have ever seen.
So let’s continue.
Mr Eliza said the 16 per cent figure was the highest ever recorded in the Big Book of Australian property sales going back to 2008, but the average over the past 15 years for resales within three years was less than half that (7.9 per cent).
The number of newly listed stocks with holding periods of three years or less also hit a record high of 17,828.
Eliza, why are we so angry?
“Short-term flips happen for a variety of reasons, including 'flip' a home, seeking a large capital gain, or relocating for work. Remember COVID-19?”
i will do it.
But Eliza, I'm no virtuous person, but I can tell you right away that in this crazy world with skyrocketing interest rates, a mere three year problem is no big deal.So, aren't we seeing an increase in forced sales?
For example, people who borrow to the maximum find themselves in financial difficulty because the cost of money has become so high.
Yes, Christian, you are right again.
“Cost of living pressures are high, so resales due to constraints on ability to repay mortgages may also be a contributing factor.”
“Indeed, the acceleration in the growth of short-term hold properties (those with a last sale date within the past three years) has been most noticeable since May 2022, when the underlying cash rate began to rise from its record low.”
And is this trend the same across the country?
“No. That's wrong. That's completely wrong. There are striking differences between market trends in regional and metropolitan Australia.”
“Proportionately, the increase in short-term holdings has been more pronounced in regional Australia, with just one in five new properties added to the market over the winter having been purchased within the past three years (or as of September 2020),” Eliza says.
The pandemic has undermined real estate trends
So, back to this.
Global pandemic. Quantitative easing. The Walking Dead. Cats and dogs coexisting.
And flee the city.
“This is an interesting trend that has emerged in the context of COVID-19, which has been associated with record levels of internal migration to regional Australia,” Eliza says.
According to the Local Code Bureau, starting around March 2021, super-spreader events occurred in the Australian property industry.
As the virus spread, the number of people fleeing cities for the countryside more than doubled, according to ABS data.
Total migration from Australia's capital cities to regional areas in the March quarter reached about 12,000, up from an average of about 5,300 over the previous decade.
According to Eliza, which looked at the latest (provisional) ABS figures, by March 2023 the tide had turned completely, with net inter-regional migration reaching 5,645 in the same quarter just two years later.
“Some of those who have recently left regional Australia may have migrated to regional areas through COVID-19 and this may be linked to the sale of properties purchased during the pandemic.
“However, it is worth noting that there has been an upward trend in new short-term listings in regional Australia since around mid-2019, prior to the pandemic,” Eliza said.
“This was in a falling interest rate environment and near the bottom of regional Australia's economic downturn from 2019.”
Australian cities in turmoil
Eliza points out that the trend of short-term listings is widespread across the capital region's markets.
Bris Vegas had the highest concentration of short-term listings throughout the winter, accounting for a staggering 19.2% of all listings added to the market.
“Interestingly, the rest of Queensland also had the highest proportion, making up 23.8 per cent of the total regional market,” Eliza said.
This means that a quarter of new homes in regional Queensland are back on the market within three years.
“As with the wider regional market, South East Queensland has been a highly popular domestic migration destination throughout the pandemic*.”
*The chart below summarises the percentage of short-term newly listed properties added to the market every three months.
“In all capital cities except Hobart and Darwin, the proportion of short-term properties remaining on the market through the winter is close to record highs.”
Let's take a closer look:
Breaking down the data at the SA4 level, the following stocks had the highest concentration of short holdings:
Wide Bay (29.6%) Cairns (26.2%) Gold Coast (25.8%)
We won't comment on the net total of the Queensland disappointment big changes happening here, but in the case of Cairns and Wide Bay, these tremendous figures represent an increase of more than three times the “historical average concentration of newly listed properties held for less than three years.”
On the Gold Coast it was almost double that.
However, and this is particularly odd, the lowest concentrations were across Melbourne, including:
Melbourne – Inner (7.0%), Melbourne – Outer East (9.6%), Melbourne – North East (9.6%)
People love Melbourne, it's weird.
Out of 10, how worried should I be about this?
“A home is generally not an asset that can be traded quickly or easily because of the high transaction costs (both time and money) associated with stamp duty, lending, moving etc,” says Owen.
“This is an inconvenience for sellers, and even more so if the sale is at a loss.
“However, the recent short-term phenomenon of resales is unlikely to lead to a wider loss of financial stability, especially amid rising housing market values.”
“In fact, periods of significant capital gains may be associated with short-term resales, as sellers may be able to realize large profits that can offset high transaction costs or may be used to purchase higher quality properties.”
Eliza notes that Figure 4, which I have dutifully typed into the computer screen below, is a useful indicator of whether sellers of short-term hold properties expect to sell at a profit or at a loss.
“It plots the percentage of short-held properties whose advertised price is lower than their last selling price.”
Result:
This is a growing phenomenon, but it is not encouraging.
Owen said the proportion of properties being offered for sale below their previous sales price was increasing through to 2022, with 9.7% of properties held for two years or less actually selling at a loss.
“The latest property data shows that 18% of short-term holdouts were sold for less than their previous purchase price. However, this was lower than the series average (18.2%) and was down slightly in the three months to July.”
It all boils down to COVID-19 and the temporary loss of reason that a viral pandemic causes.
“Interestingly, the most recent woes around short-term resales occurred at the start of the pandemic, with 28.3% of sellers who recently purchased putting their property on the market at a reduced price in the fiscal year ending March 2020. The underlying figures for that period were also higher than those for the period up to winter 2023.”
So, taking all these different unrelated variables into account, Eliza believes that “there may be more to the recent short-term sales than high interest rates and the possibility of mortgage payment defaults.”
So it's not just the central banks that are to blame? That's infuriating.
“Part of this could be a reversal of COVID-related regional migration trends or the realisation of significant recent gains, particularly in the Queensland, South Australian and Western Australian markets where capital gains have been particularly strong despite recent interest rate increases.”
Eliza added that sales conditions remain strong, particularly in these states, where the increase in short-term resales has contributed little to the increase in overall listings.
But the solution is clear: get the real estate price inflation machine going again, as we've already seen this spring.
“House prices are expected to rise in the near future, reducing the risk of short-term resale in terms of paying down outstanding debt.”
Eliza get out.
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