Property owners reap huge profits | CoreLogic Pain and Gain report: Australian national overview

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A staggering number of property owners made a profit on reselling their homes in thee first quarter of 2021 as historic low interest rates and pent up demand flooded the market with buyers.
New research found between January and March 2021, 90.3 per cent of all sales made a profit.

CoreLogic has analysed approximately 98,000 resales across Australia, where the most recent sale date was in the March 2021 quarter.

Home Resales2Of the resales observed, 9.7% of properties sold at a nominal loss relative to the previous purchase price, seeing 90.3% of sales make a profit.

The rate of profit-making sales has increased from 89.1% in the December 2020 quarter and is higher than the decade average of 89.0%.

The incidence of profitability is also up from a recent low of 86.0% in the June 2020 quarter, when social distancing restrictions were strictest in response to COVID-19.

As well as a quarterly decline in the proportion of national loss-making sales, from 10.9% to 9.7%, the number of loss-making re-sales also fell -16.5%.

This decline in the volume of loss-making resales, to around 9,500 in the March quarter, occurred against a -6.1% fall in national observations.

Increased profitability is likely the result of an acceleration in housing values through the March 2021 quarter.

Australian housing values began an upswing from October last year, as extended social distancing across Melbourne eased.

But by the March quarter, quarterly growth in dwelling values had risen to 5.8%, which was the highest quarterly increase in national dwelling values since October 2003.

Even as quarterly growth rates continued to accelerate through April and May, CoreLogic researchers believe March may have marked a monthly peak in housing value increases for this year, at 2.8%.

The combined gains from these profitable sales totaled $30.6 billion, which is less than the $32.2 billion captured through the December 2020 quarter and may be the result of lower sales volumes in the three months to March.

The combined value of loss from resales through the March quarter was $1.13 billion, up slightly from $1.12 billion in the December quarter.

A portion of profit-making sales, national — rolling quarter.

Chart1

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 resales.

The differential between the two markets has narrowed to 60 basis points, down from a wider gap of 160 basis points in the September 2020 quarter.

The rate of profit-making sales in the capital cities has increased more sharply in quarterly terms, up from 88.8% in the December quarter.

The rate of profit-making sales across the combined regionals has risen from 89.5% in the three months to December 2020.

The lower loss levels across regional Australia through the March quarter likely reflect higher growth rates in dwelling values.

In the three months to March, the combined regional dwelling market increased 6.3%, compared with a 5.6% increase in values across the capital cities.

The portion of loss-making sales — rolling quarter

Chart2

The March quarter saw a reduction in the portion of loss-making sales across many markets.

This was the case for each capital city, with the exception of Melbourne.

Across Melbourne, loss-making sales accounted for 5.5% of resales in the three months to March, up from 5.3% in the previous quarter.

While Melbourne saw slightly more pain for vendors over the period, the city still maintains the second-lowest rate of loss-making sales behind Hobart.

Across regional Australia, the rate of loss-making sales fell in each greater ‘rest of state’ market, with the exception of Tasmania.

The regional Tasmanian market has a very low rate of loss-making sales, at 3.6%, despite the increase through the quarter.

SaleOf all the greater capital city and rest of state markets, profitability increased most dramatically across Darwin.

Loss-making sales across the city fell from 50.1% in the December quarter to 38.9% through the March quarter.

This coincides with a 5.4% lift in values through the period, alongside very high hold periods of profitable resales.

Other notable reductions in the incidence of loss-making sales occurred across Regional Western Australia, the Northern Territory, and Perth.

The improved position for vendors in resource-based markets is explored under the ‘resource market’ section of this report.

The improved incidence of loss-making sales across many markets reflects the broad-based nature of housing value increases through the start of 2021.

As well as higher levels of profitability, the current advantage for home sellers is highlighted in other metrics.

In the 3 months to May 2021, the median time on the market across Australia fell to 28 days, down from 42 days in the same period of 2020.

Rates of vendor discounting have shrunk to just -2.7% in the three months to May, up from -4.0% in the same period last year.

Since March, dwelling values have only continued to increase, with increases in dwelling values seen across every capital city and the rest of the state market.

Chart3

These strong selling conditions should be reflected in slightly higher rates of profitability in the June quarter.

The upswing in purchase prices and profitability has been driven by growth in borrowing. ABS housing finance data to April suggests borrowing for the purchase of property increased 30.5% in the past 12 months, compared to the previous 12 month period.

The sharp rise in credit and house prices means more scrutiny may be placed on lending conditions.

The Council of Financial Regulators reiterated in their June 2021 quarterly statement that lending standards need to remain sound in the current environment, and APRA has written to large lenders to get assurance that risks within housing loan portfolios are being managed.

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About

Eliza is head Of Residential Research Australia for Corelogic and a respected property market commentator. Eliza holds a first class honours degree in economics from the University of Sydney


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