Victims of the RBA’s misguided forecasts continue to feel the pain

You know how ropeable I am about the Reserve Bank’s comments two years ago reassuring Australians to go out and borrow with the comfort of knowing interest rates would not rise until 2024. It was negligent for them to make those comments.

Financial markets were warning of a then-imminent breakout in inflation and the need to lift interest rates, but the RBA publicly said they were wrong. The RBA sets rates so the Australian public naturally believed them, not the markets, and went out and borrowed.

As we all know the RBA was wrong… not just wrong, but horribly wrong. We’ve endured the shortest, sharpest rise in interest rates in a generation.

The financial and emotional cost of that is being felt by those Australians who took the RBA’s advice.

The CoreLogic Pain & Gain report for the June quarter shows the portion of loss-making short-term resales of property has increased to 9.7 per cent, from just 2.7 per cent a year ago.

What this means is that almost 10 per cent of people who bought a property within the last two years have now sold at a loss. That loss is generally about $30,000. The other 90 per cent of people who have sold within two years of buying generally made a profit of about $70,000.

But this is just based on the buy and sell price. As we all know, the transaction costs of buying and selling (stamp duty, legal fees, agent commissions and fees) are huge. So the losses are a lot higher and profits much lower.

Look out for the extra costs of buying a home

It shows these new home buyers borrowed what they could afford at the time on the back of the RBA forecast but have been caught out by the sooner-than-expected rate rise. They are willing to take a loss on a sale to get out of a serious financial crisis.

Over the longer term, the outlook is very different for property sellers. It shows the rewards gained from property over the medium-to-long term… and shows the residential boom we’ve been through over the last couple of years.

The CoreLogic Pain & Gain report shows 92.8 per cent of existing property resales were made at a profit over the June quarter.

Key findings were:

The incidence of profit-making sales nationally increased to 92.8 per cent, up from 92.4 per cent in the previous quarter.
The median gains from resale were $290,000 in the quarter.
The median losses from resale were $39,982.
Net profit from residential resales was $25.5 billion in the June quarter.
Among the capital cities, Darwin had the highest volume of loss-making resales at 34.4 per cent, followed by Perth at 12.3 per cent.
Adelaide was the most profitable market of all the regions and capital cities, with just 1.8 per cent of loss-making sales.
Owner occupiers continued to see a far greater rate of profitability than investors.
The median ownership hold period for resales across Australia was 8.7 – down from 8.9 years in the March quarter, and almost 10 years in the final quarter of 2022. So homeowners are flipping properties quicker than ever.