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Profitable resales drop for the first time in 18 months but buyer demand is still solid

The rate of profit-making resales across the Australian property market has fallen for the first time since August 2020, indicating conditions have reached a turning point.

CoreLogic’s latest Pain & Gain Report shows that profit-making resales fell 30 basis points to 93.7 per cent from 106,000 sales in the March quarter.

Head of Research Eliza Owen said while it was only a slight decline, there were several factors pointing to further falls in coming months.

“Our quarterly Pain & Gain report is another sign of a changing market for sellers,” Ms Owen said.

“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.”

Market Buy Chief Executive Officer, John Hellaby said that while markets have cooled off slightly, there was still a lot of buyer interest.

“Nationwide we’re seeing 17.8 offers per property, down slightly from 18 last quarter, but keeping in mind we’re coming off what was a record year last year,” Mr Hellaby said.

“The number of buyers has also dropped this quarter, down from 8 buyers to 6.3 on the national average.

“This is the key thing – yes it’s down, yes it’s cooling but we’ve got to remember it’s cooling from an absolutely obscene level.”

Mr Hellaby said demand remained high with 4.81 active buyers for each property, down from 4.85 last quarter.

“We can look at this and say this is the impact of an interest rate rise, and also coming into the winter months and an election, but at its core, we’ve got to remember there are five buyers for each property competing so there are still four buyers missing out,” he said.

“So the supply issue still exists and until we address that the market’s not going to plummet.”

According to CoreLogic, the median gains from resales nationally were $290,000 with the highest for Sydney dwellings ($415,000) and lowest across Perth ($119,000). Nationally, median losses on resales through the quarter stood at -$33,000.

“Our analysis shows the median hold period nationally is nine years when properties were purchased during the March quarter of 2013,” Ms Owen said.

“Since then Australian dwelling values have increased 70.3 per cent, or the equivalent of around $309,000 in the median dwelling value across Australia.”

Australia’s capital cities drove the deterioration in profit-making resales, falling 60 basis points to 93.3 per cent. Melbourne led the way, with the rate of profit-making resales falling a full percentage point followed by Sydney’s fall of 60 basis points.

Regional areas remained strong, with the rate of profit-making sales lifting 10 basis points in the quarter, to 94.2 per cent. 

Hobart had the highest incidence of nominal gains for the 15th consecutive quarter, at 99 per cent followed by the ACT, which recorded a record high 98.8 per cent of resales making a nominal gain. Regional Victoria had the highest rate of profitable sales in the regions, also at a record high 99.4 per cent. 

“Hobart dwellings have been in incredibly high demand over the past few years, being one of two capital cities – alongside Sydney – where dwelling values have doubled in the past decade,” Ms Owen said. 

The rate of profit-making sales for houses was 96.2 per cent, and 88.3 per cent across units in the quarter according to Ms Owen.

“Both houses and units have been popular, however conditions across this market may be starting to shift,” she said.

“In April dwelling values saw the first monthly decline in almost two years and total listings have started to accumulate. 

“For very recent buyers, the chance of making nominal gains on a resale may be reduced in the coming months, and median hold periods across the city may start to be extended as a result.”

While conditions across regional coastal centres are starting to shift amid higher interest rates, resale profitability remained extremely high through the March quarter in some areas. 

In Geelong, 99.9 per cent of resales made a nominal gain, a record high for the region, and the highest of the coastal dwelling markets through the quarter. 

“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,” Ms Owen said.

The cash rate tightening cycle, which began in May, is likely to reduce the flow of credit towards housing, which will impact prices and profitability according to Ms Owen.

“It is worth noting that price gains through the current housing market upswing have been very strong,” she said.

“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.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.