Not surprisingly the current property market has created many more winners than losers.
CoreLogic has analysed approximately 133,000 resales through the December 2021 quarter.
Through this period, it was estimated that 93.8% of resales made a nominal profit from the previous sale.
This is up from 92.4% in the previous quarter and marks the sixth consecutive quarter that the rate of profitability in Australian resales has increased.
Despite the very high instance of profitability in Australian real estate, it is not at a record high.
The highest rate of profit-making sales was 97.2% over the three months to April 2004.
This rate of profitability occurred off the back of Australia’s longest housing market upswing on record, which was almost uninterrupted from September 1995 to January 2004, and saw housing values nationally increase by 109.7%.
The total volume of nominal profits from residential real estate analysed in Australia was $38 billion over the December 2021 quarter.
This was up around 28% from the previous quarter when an estimated $29.7 billion was gained from resales.
Portion of profit-making sales, national — rolling quarter
Portion of loss-making sales, capital cities versus regional — rolling quarter
The increase in the volume of profit coincided with the relaxation of strict lockdown restrictions in Sydney and Melbourne through the December quarter, and a strong quarterly rebound in the number of transactions.
At $38 billion in nominal gains, the December 2021 quarter is the most profitable for resales on record.
This profitability has been realised by Australian home sellers amid low-interest rates, which contributed to a cumulative rise of 24.9% in Australian dwelling values between September 2020 and December 2021.
Despite a slowdown in the quarterly rate of capital growth since May last year, Australian home values continued to increase.
This has driven the rate of profitability higher and higher in recent months, with many dwelling markets sitting at record-high values.
The total volume of nominal losses in the quarter was around $355 million, down from $394 million in the previous quarter.
The median hold period on all resales was 9.1 years through the quarter, with the median difference between the initial and resale value sitting at $300,000 in the period.
Nationally, the median profit on resales was $319,000 in the three months to December, while median losses were $34,000.
Across the combined capital cities and ‘rest of state’ regions of Australia, 13 out of 15 saw an increase in the rate of profitability.
The portion of profit-making sales ranged from 99.2% in regional Victoria to 73.1% in Darwin.
While Darwin had the highest portion of loss-making sales in the December quarter (26.9%), it was also the most improved from the September quarter.
The rate of loss-making sales across Darwin fell 7.4 percentage points through that period.
Interestingly, the portion of loss-making sales across Darwin has trended down from a spike in the September quarter.
Perth also saw a notable drop in the rate of loss-making sales in the December quarter, falling 3.3 percentage points to 16.9%.
Across Perth, the median hold period of profit-making sales was 8.3 years, suggesting typical purchase dates of late 2013.
As of March 2022, Perth dwelling values remained -0.2% below the previous record high.
The only regions that saw a slight deterioration in the rate of loss-making sales were Sydney and regional Tasmania.
The rate of sales making a nominal loss ticked up 10 basis points between the September and December quarters of 2021, to 4.3% in Sydney.
In regional Tasmania, the rate of loss-making sales rose from 1.6% in September 2021, to 2.3% in the December quarter.
Hobart remained the most profitable of the capital cities, marking the 14th consecutive quarter that Hobart led rates of profit-making sales.
In the December quarter, only 1.7% of resales made a nominal loss, down from 1.9% in the September quarter.
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Given growth in Hobart dwelling values rose a further 2.7% through to March 2022, the Hobart dwelling market could showcase even higher rates of profitability in March resales.
Australian home values rose a further 2.4% through the March quarter of 2022, which may see increased profitability observed in the coming months.
However, it is worth noting that Australia’s housing market may be nearing a peak value, with more divergent performance emerging across markets.
Higher average mortgage rates, rising advertised stock levels and affordability constraints are already seeing values slip across Sydney and Melbourne, where dwelling values declined -0.2% and -0.1% through March respectively.
The impact of interest rate tightening may also affect profitability at the margin for more recent buyers.
In the April Financial Stability Review, modelling from the RBA suggested a 200 basis point increase in the cash rate from current levels could lead to a 15% decline in real house prices over a two-year period.
A 15% decline in the current median dwelling value across Australia would take prices close to May 2021 levels, and those having purchased around that time may see an increased chance of making a nominal loss through to 2024.
However, resales within three-year periods make up a relatively small portion of resales observed (around 10%), and resale events also tend to decline in a falling market.
Portion of loss-making sales, capital cities versus regional — Quarter on quarter change
Houses vs Units
Through the December 2021 quarter, the rate of profit-making sales was 96.2% across Australian houses and 88.6% across units.
While units were around 34% more likely to see a loss-making sale than houses, the instance of loss-making sales is falling faster in the unit segment over time.
The rate of loss-making unit sales fell 2.3 percentage points in the quarter from 13.6%, compared to a decline of 1.1 percentage points from 5.0%.
House sellers have historically seen a premium on nominal gains compared to those reselling units.
Through the December 2021 quarter, the median gain from house resales nationally was $375,500, higher than the median gain from units nationally (which was around $180,000).
The difference in nominal gains between houses and units across Australia has become particularly large through the current housing market upswing.
In the year to December 2021, national house values increased 24.5%, compared with a 14.2% lift in national unit values.
The chart below shows the difference between a median house and unit profits in the capital city, from the December 2020 quarter to the December 2021 quarter.
Unit sellers also made larger losses at the median level, at $38,000 in the quarter, compared to median losses of $29,000 across houses.
These better profit and loss outcomes in the housing segment may largely be due to the popularity of houses over units long term.
Through the current upswing, houses have been particularly desirable as a lower density housing option, and have been in high demand from owner-occupier buyers who have dominated the current upswing.
Typical hold periods for profit-making units nationally were 8.2 years, compared to 9.6 years across houses.
Loss-making unit sales had a median hold period of 7.8 years, compared to 9.5 years across loss-making house sales.
How much more do house sellers make than unit sellers?
Difference between median nominal gains - houses vs units, Dec 20 quarter versus Dec 21
The proportion of total resales at a loss/gain, houses vs. units, December 2021 quarter
The table above summarises the portion of loss and profit-making house sales across the greater capital city and regional markets.
The lowest incidence of profit-making sales was across units in regional WA, where only 58.8% of resales made a nominal gain in the quarter.
Although this is low compared to other capital cities and regional markets, this figure has risen substantially from a recent low of 34% in the three months to April 2020.
Across the house and unit markets, Melbourne houses actually saw the highest incidence of profitmaking sales, at 99.6%.
This was steady in the previous quarter.
As the Melbourne market showed declines in dwelling values through the months of January and March 2022, the city may see greater instances of loss-making sales going forward.