The vast majority of Illawarra home owners have made a six-figure gross profit by selling their property recently, new figures show.
However, the current interest rate environment and lifestyle factors are seemingly resulting in a greater number being forced to sell at a loss.
CoreLogic's Q1 2024 Pain & Gain report has found that in the Illawarra, 96.6 per cent of transactions during this period were gross profit-making sales.
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Those sellers had held their properties for an average period of 8.4 years, and made a median profit of $384,740.
Of the 3.4 per cent that were loss-making sales, owners had held their homes for a median period of 2.1 years, and had a median loss of $65,000.
CoreLogic's head of research Eliza Owen said profitability across the region has faltered a little, following a recent high in the December quarter of 2022.
At that time, profitability was sitting at 99.2 per cent of re-sales across the region. The median profit from re-sales in the Illawarra at that time was $417,000.
And in the December quarter of 2023, profit-making sales were at 96.8 per cent.
"So it's really in line with a slight decline in overall values across the Illawarra, from a peak in May 2022," Ms Owen said.
"The fact that overall home values are still sitting below those highs, signals that rate increases have had a fairly notable impact on the Illawarra market."
CoreLogic's research director Tim Lawless recently told the Mercury the Illawarra market was currently still 2.4 per cent below its record high for values, which was in May 2022.
Ms Owen said even though the region's market is "very profitable", we are starting to see some sales occur at a loss, and those sales generally have low hold periods of about two years.
"That suggests it's people who bought around the peak, and were selling for a loss in the March quarter," she said.
"The fact that you have loss-making sales occurring within two years of the property being purchased suggests that it's not an ideal time for people to be selling, but the high interest rate environment means some owners may need to sell if they're having issues with mortgage serviceability.
"It represents a relatively small part of the market...But it's a significant process for people who bought at the peak, and are now facing issues of serviceability. Or it could be lifestyle factors, such as maybe they made a move to the regions, and they now have to move back somewhere else, or go somewhere more affordable.
"Some may be selling an investment, which can also be a major financial decision."
Darren Kay from Belle Property Illawarra said he wasn't seeing any distressed sales at the moment, but said that could change towards the end of the year.
Mr Kay said the Illawarra market hadn't gone forward in leaps and bounds, but had maintained itself well.
"Regardless of the market conditions, there will always be unrealistic vendors, and there will always be bargains as well, which can be determined by people's personal circumstances," he said.
"At the moment, homes are selling, there are no distressed sales, but there's very little heat in the market at the moment.
"There are certainly properties that are less appealing, which can be challenging to sell. In that case the sellers may need to be more realistic, listen to the market, and decide if they're willing to sell at that level. Alternatively, they can rent it out and wait for a more buoyant market.
"Buyers need to be able to consider whether they can service their debt with multiple interest rate rises. If they can, real estate is a great long-term proposition."
Looking ahead
Could there be more loss-making sales during the second half of 2024?
"I think the Illawarra market in the short-term will see an improvement in profitability, just because it lines up with capital growth trends, and the capital growth is accelerating," Ms Owen said.
"Short-term, such as next quarter, we will probably see an improvement in profitability.
"But there are still risks longer-term. There has been a lot of focus on recent inflation data, economic conditions are weakening, and this could affect demand across the Illawarra market in the longer-term."
The national outlook
According to the report, Australian property re-sales reached their highest rate of profitability since July 2010 in the first quarter of the year thanks to consistently rising home values outweighing economic challenges and persistently high mortgage rates.
CoreLogic analysed approximately 85,000 re-sales over the period, revealing 94.3 per cent of transactions recorded a nominal gain.
Ms Owen said the number of transactions increased 8.5 per cent from the same quarter of last year while national home values rose 1.7 per cent in the quarter.
The rate of profit-making sales in Q1 was higher in the combined regions than in capital city markets, which has been the case each quarter since the three months to May 2020.
Of the re-sales in regional Australia through the March quarter, 95.6 per cent made a nominal gain, compared to 93.5 per cent of resales in the capital city markets.
"The rate of loss-making sales in regional Australia has structurally shifted lower from a pre-COVID decade average of 13 per cent to 7.2 per cent since March 2020," Ms Owen said.
"This shift is driven by increased demand in lifestyle regional markets, the affordability of major regional centres compared to capital cities, and a recovery in resource-based regional markets."
