Housing profitability surges in June quarter

Tight listings, record low mortgage rates and Australia’s extraordinary growth in housing values have led to continued strong resale gains for vendors, particularly in Australia’s regional and tree change markets.

CoreLogic’s Pain & Gain Report, released yesterday, shows 91.5 per cent of resales during the June quarter recorded a nominal profit-making gain from the previous purchase price, the highest level of profitability in just over a decade.

CoreLogic’s head of research Eliza Owen says nationally, profit-making residential property sales have risen for four consecutive quarters.

The report, which analyses the proportion of housing resales that delivered nominal gains or losses to sellers is based on around 106,000 dwelling resales in the June quarter – a 9 per cent increase compared with the March 2021 quarter.

“This number really does reflect the extraordinary recovery in housing values following a small downswing induced by the initial impact of COVID-19,” says Owen.

The typical median hold period on all resales for the quarter was 8.8 years, with a national median gross resale profit of $265,000. Median gross losses for the same period were -$43,000.

However, Owen says the market’s recent extraordinary growth allowed property owners who were reselling after only two years to pocket a median return of $123,000.

“For those cashing in after over 30 years of holding a property, the median return was $712,000,” she adds.

“Such high levels of profitability may start to encourage vendor participation and bring down typical hold periods, especially as major cities navigate a path out of 2021 lockdowns.”

The highest instances of profitability were achieved across regional and tree-change markets, a trend that has continued in 2021.

Regional Victoria’s Ballarat SA4 region achieved a record high rate of profitability with 99.7 per cent of resales in the June quarter achieving gains.

Owen says such record high rates of profitability extended to regional Victoria’s entire dwelling market, where 98.7 per cent of resales were above the purchase price.

“Impressive returns were not confined to just Victoria, as 97.6% of Sydney house resales achieved a level of gain, the highest level of profit-making resales since 1982,” she says.

“Even markets with relatively elevated levels of loss-making resales saw vast improvement through the June quarter, as the rate of loss-making resales declined -4.6 percentage points across Perth in the June quarter, and -4.7 percentage points across Darwin.”

However, Owen says profit-making resales did not occur nationwide as pockets of risk and high concentrations of nominal loss were recorded in specific locations. An analysis of local government area

housing markets saw a high rate of loss-making resales across inner-city areas such as Perth (63.5 per cent), Darwin (39.3 per cent) and Melbourne (34.8 per cent).

Profitability across both house and unit markets rose through the June 2021 quarter, though the incidence of loss-making resales remained substantially higher across the unit segment.

CoreLogic’s figures show that investors saw a higher incidence of loss-making resales (12.3 per cent) compared to owner occupiers (6.1 per cent) due to the subdued performance across unit markets as closed international borders and minimal economic activity in CBD areas resulted in plummeting demand for inner-city rental markets.

Despite housing values increasing in the 12 months to June, Owen says quarterly figures indicated the rate of growth was starting to slow.

“While profitability is expected to trend higher across Australia in the coming quarters, it is clear that the rate of profit-making resales mirrors the trends we’re seeing in city and regional capital growth rates,” she says.

“As the rate of increase in values slows, as we have started to see each month since April, so too will the momentum in profitability. We’re monitoring a number of headwinds that may drag on, or even reverse housing market growth in the medium to long term, including affordability constraints, a tighter credit environment, a resurgence in listings volumes, and some economic factors including a slowdown in the resources sector.”

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