Rate of profit-making resales still high despite declining for the first time in over a year. Image – Canva
  • CoreLogic's latest Pain & Gain Report reports a decline in the rate of profitable sales
  • Despite the dip nine out of ten Australians are still selling at a profit
  • Houses outpaced units in the resale profitability

The decline in the rate of profit-making sales across Australia was modest in the March quarter of 2022, dropping 30 basis points to 93.7% according to CoreLogic’s latest Pain & Gain Report.

The change marks the first quarterly fall in profitable sales from the three months to August 2020.

The latest decline still means that roughly nine out of ten Australians are selling their dwellings at a profit.

CoreLogic analysed approximately 106,000 property resales that occurred in the March 2022 quarter.

CoreLogic Head of Research Eliza Owen said that while the research found only a slight decline there are several factors pointing to further falls in coming months.

“The figures align with other key indicators such as the slowing growth rate of values, the increasing time it takes to sell a property and a fall in sales volumes at a time when access to credit has become harder and interest rates are on the rise.

“In May Australian dwelling values posted the first monthly decline in value since September 2020.

“Against a backdrop of rising interest rates, tighter credit conditions and affordability pressures we are likely to see the instance of nominal gains from dwelling resales erode throughout 2022, which will have an even greater impact on buyers who have entered the market more recently,” Ms Owen said.

In dollar terms, the median gains from resales nationally were $290,000. Sydney resells recorded the highest median gains at $415,000 while Perth had the lowest at $119,000.

Of dwelling resales that recorded losses, the national median sat at -$33,000 for the quarter.

Delayed gratification

As is usual, properties with longer hold periods typically reported higher nominal capital gains. Those held for 30 years or more achieved median gains of $781,750.

Hold periods between 24 and 26 years also achieved extremely high gains in the March quarter.

Ms Owen explained that many of these were purchased in the 1990s.

“Properties were acquired relatively cheaply at this time because of a significant housing market downswing through the mid-90s,” she said.

“Our analysis shows the median hold period nationally is 9.0 years when properties were purchased during the March quarter of 2013. Since then Australian dwelling values have increased 70.3% or the equivalent of around $309,000 in the median dwelling value across Australia.”

Houses out-perform units

Houses outpaced units in the resale profitability. The rate of profit-making sales for houses was 96.2%, while units lagged behind at 88.3% for the quarter.

Both dwelling types recorded an overall decline in the rate of profitable sales, but units recorded a steeper drop of 50 basis points. House resale median gains were $370,000, compared to $173,000 for units. The disparity between losses was also greater for units (-$36,000) compared to house resales (-$29,400).

Ms Owen explained that the dip in unit profitability compared to houses is compounded by the nominal losses in inner-city markets where the majority of unit development had been concentrated.

She also indicated that a surge in apartment construction between 2012-2017 contributed to the lower rate of profitability among unit sales, recorded in the March quarter 2022.

Profitability outlook

Ms Owen warns tightening of the cash rate which began in May, is likely to reduce how much buyers are willing to pay for property, a change that will have flow-on effects for prices and profitability.

Housing market values are already showing signs of easing. They declined -0.1% nationally through May, with the rolling 28-day change in the CoreLogic Home Value Index suggesting price declines are accelerating.

“Price declines across the market signal there could be a higher probability of loss-making sales in the coming months, though hold periods will play an important role here.”

Eliza Owen, CoreLogic Head of Research

However, Ms Owen highlights that not all hope is lost for those looking to sell in the current property climate.

“It is worth noting that price gains through the current housing market upswing have been very strong. It may only be recent buyers who will take a loss when selling compared to those who purchased before the upswing.

“Even in a declining market the extent of Australia’s loss-making sales will largely be in line with future capital growth trends,” Ms Own said.

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