- CoreLogic report shows resale profits is up from 89.1% in previous quarter
- Increase in resale profits come off the back of growth in dwelling prices
- However, there is acknowledgement of affordability constraints with a housing boom
According to CoreLogic’s Pain and Gain report for the March 2021 quarter, the portion of profit-making resales increased to 90.3% nationally. This figure is up from 89.1% in the previous quarter and the low of 86% induced by COVID in the 3 months to June 2020.
Increases in the rate of profit for real estate sellers have come off the back of remarkable growth in Australian house prices. Historically low interest rates have primarily driven the nation’s housing boom, as the Reserve Bank of Australia (RBA) remains committed to lower unemployment and sustainable growth in wages.
CoreLogic data shows that dwelling values have risen 8.2% between the market bottoming out in September 2020 to the end of March 2021. Australian Bureau of Statistics (ABS) latest figures for the eight capital cities showed residential property prices rose 7.5% over the last 12 months.
Meanwhile, Louis Christopher from SQM Research has estimated between 5% and 9% growth in capital city dwellings over 2021.
“The total profit reaped by sellers in Q1 2021 was $30.6 billion nationally,” said Eliza Owen, Head of Research Australia at CoreLogic.
“This is actually down from $32.2 billion in the December quarter, but that is likely a reflection of seasonally lower sales activity through the start of the year.”
Reflecting a key trend in the current housing boom, Ms Owen noted that March 2021 marked the fourth consecutive quarter where regional Australian resales sustained a higher rate of profitability than in the capital city markets.
“90.6% of regional resales saw a profit through the quarter, compared with 90.0% of capital city sales.
“However, the gap in the rate of profit seen between capital cities and regions has narrowed, and is likely to keep narrowing given capital city growth rates have been closer to regional value growth rates through April and May.”
Eliza Owen, CoreLogic
This finding aligns with NAB data, which found that the rush into regional areas has subsided, with first home buyer activity falling 4% over the previous four months. Meanwhile, metro areas rose 13% in the same period.
Ms Owen said “sea change” and “tree change” markets have generally seen an uplift in the rate of profit-making sales through the March quarter, including an extraordinary 99.5% of Ballarat sales making a profit during this period.
Looking ahead, Ms Owen said, “Overall, a broad based housing market upswing continues to support improved profitability in housing market resales.”
“However, with the dwelling market at extraordinary record high values, there are potential headwinds for buyers to be cautious of.
“At the national level, these include affordability constraints, eventual mortgage rate rises and the remaining threat of COVID clusters.”
Ms Owen is not the first to bring up affordability constraints.
With a rising market, this is great for investors and older people who already own a home. This is not so good for young people trying to buy their first home, with a deposit remaining the biggest hurdle to enter the housing market.
According to the Grattan Institute – in the early 1990s, it took 6 years to save a 20% deposit on an average home. Today it takes 10 years.
Although the Federal Government has announced programs aimed at helping first home buyers, some commentators argue that this does nothing to tackle long-term structural reform in the nation’s housing market.
Other solutions have been sounded on and debated in the media recently. These include abolishing negative gearing, allowing people to access their super early to contribute towards a housing deposit and relaxing zoning laws to increase the supply of housing.