Safe as houses? The Melbourne sellers caught out by the property downturn

Key points

• A worsening market and high interest rates mean some homeowners have sold at a loss. 
• The prospect of very short-term gains has shifted, but sales are often more profitable when homes are held for long periods.
• Experts say in some cases it can be better to take a hit on a property price rather than try to hold on in a tough lending environment.

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Quick-turn around property sellers would be lucky to avoid selling at a loss in Melbourne’s weak market, as experts advise those who bought during the peak to hang on as long as possible.

Melbourne house values have declined 9.6 per cent in the 12 months from their peak in February last year, according to CoreLogic figures. The group’s data found 8 per cent of sales in the December quarter were made at a loss, skewed heavily towards apartments.

9 Yarra Street, Hawthorn sold at auction for $5.505 million, $255,000 more than two years ago.Credit:Domain

Sales were generally more profitable among properties held for longer periods, but the research found the opportunity for very short-term gains had shifted.

Cate Bakos Property owner Cate Bakos said those who bought during the COVID property boom would be lucky to make their money back if they had to sell today.

“[COVID] did funny things to all of us and a lot of people acted emotionally and sometimes irrationally,” she said. “If you bought in the peak, and you make a decision to sell now, there aren’t many vendors who would anticipate doing better.”

Morell and Koren prestige buyers’ advocate Matt Cleverdon said the old adage “safe as houses” wasn’t always true.

“Australians as a whole traditionally believe it’s their right to make money out of real estate, but due to the crazy market of the last couple of years, if you haven’t bought well or in really good areas, your mistakes may be punished.”

Rising mortgage rates and cost of living concerns are weighing on housing affordability, and many economists are concerned that distressed sales could be triggered by the “fixed-rate mortgage cliff”.

The Reserve Bank estimates 880,000 households have fixed-rate loans – set when interest rates were lower – that will expire this year and another 450,000 which will expire next year, when household repayments will jump.

Chamberlain Property Advocates owner Wendy Chamberlain said those most likely to sell in a weak market were investors; owner-occupiers were more likely to try to hang onto their home.

“If you’re holding an investment property that’s already negatively geared and there’s that extra expense you didn’t expect… if they can’t cover that cost they will sell the house,” she said. “If people bought properties in the past 10 years when mortgage rates were super low, there’s just this perfect storm.”

18 Speight Street, Newport sold for $1.44 million just months after it was purchased for $1,562,500. Credit:Domain

For example, a four-bedroom home with approved plans to renovate at 25 Normanby Street, Brighton, sold for $7.1 million in December 2021, as the market approached its peak, but was resold in January for $6.65 million.

In Newport, a three-bedroom home sold for $1.44 million in October last year. It previously traded for $1,562,500 in May – the same month the Reserve Bank began hiking the cash rate.

Another home with approved plans – this time for the construction of three townhouses – sold at a loss at 11 Emerald Street, Ringwood. It was bought for $1,425,000 in August 2021, and sold for $1,377,500 in April last year, not long after prices started edging lower because of fears of a rate hike.

Vendors may make money on a sale but lose it all to transaction fees; for example, 9 Yarra Street, Hawthorn, a historic six-bedroom mansion, made a nominal profit of $255,000 when it sold for $5,505,000 late last month.

Stamp duty paid on the previous $5.25 million sale in 2020 would likely have come close to $290,000, before agent and listing fees on the later sale.

Some homes were bucking the trend, however. A five-bedroom home at 9 Seymour Grove, Brighton, sold for a $2.4 million profit in little over two years. A builder bought the home in 2020 for $3.1 million and renovated it before its sale in January for $5.5 million.

Fredman Property Group director Joel Fredman had the sale. He said it was a rare example of a successful flip in Melbourne’s now weak market.

“It wasn’t totally over the top. But still, it was an exceptional price,” he said. It was an amazing result amongst others that could have hindered the price.

9 Seymour Grove, Brighton bucked by the trend by selling for a significant profit. Credit:Fredman Property Group

“If other results aren’t strong it can harm yours.”

Cleverdon said that holding a property through a downturn was usually the best option but stressed that, in some cases, it was better in the long term to take the hit on the sale price.

“Some people, you’re potentially better off losing a little bit and living to fight another day than going down with the ship,” he said. “Every situation is different. Talk to professionals in the area to find out what the best option is moving forward.

“It’s understandable you want to hang onto your family home or your biggest investment and try to ride it out and see your situation improve.”

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