Profitability of resales hits 14-year high

CoreLogic’s head of research Eliza Owen detailed that the number of transactions increased 8.5 per cent in comparison to the same quarter last year, with national home values also rising by 1.7 per cent over the same period.

While the rate of profit-generating sales increased, the $28.6 billion value of nominal gains over the March quarter represented a fall from the $30.6 billion achieved over the December quarter of 2023, which Owen partially attributed to a “seasonal decline in sales”.

Even with this shortfall, Owen expressed that this first quarter’s weaker median gross profit of $265,000 was “partly compositional”, with a higher portion of unit resales occurring at the start of 2024 as opposed to the previous quarter.

“Despite the slight drop off in the median nominal gain, the rate of sellers making a profit has improved over the year and is the highest in Australian dwelling sales since July 2010,” Owen detailed.

“This increase in the profitability rate across the Australian housing market helps to shore up financial stability for many property owners at a time when higher mortgage costs are starting to take their toll on household budgets.”

Market outlook based on short-term resales

Analysing the current state of the housing market, Owen relayed that short-term resales have become an “indicator of how households are reacting to rising interest rates”.

The head of research shared that the latest figures may be indicative that “short-term selling for properties owned for two years or less has passed a peak, as the value of housing lending on fixed terms had also passed a peak by March 2022”.

Holding period trends lower

Moreover, the report’s findings revealed that the nationwide median hold period of resales registered as 8.8 years, marking a decrease from 9 years in the December quarter of 2023 and 8.9 years in the March quarter of 2023.

What that means is the median initial purchase date was back in May 2015. Since then, national home values have increased by approximately 58.2 per cent through to end March 2024.

Owen noted that median hold periods have typically lowered during home value upswings as a result of “more profit-making resales of properties held for shorter periods increases”.

Profit gap between houses and units

Houses have continued to garner higher rates of profit-making sales compared to units, with 97.1 per cent of house resales making a nominal gain in comparison to 89 per cent of units over the March quarter.

The median nominal gain of $320,000 for houses in the March quarter sat 85.5 per cent higher than the $172,500 median nominal gain for units over the same period, which Owen said was a tripling of the profit gap between these metrics.

“The enormous capital gain windfalls afforded to detached house owners over the past few years is another illustration of the ‘haves’ and ‘have nots’ of real estate,” Owen stated.

“Underlying land value, scarcity, and a desire for more space through the pandemic has helped drive buyer demand and in turn led to a more substantial rise in house values relative to unit values.”

Nevertheless, Owen identified worsening affordability and supply constraints as rendering units “increasingly attractive” in the eyes of buyers who have been priced out of certain markets.

“Slowly that gap between the price of detached housing and medium- to high-density options should decrease and with that (the) profitability of units will improve,” she concluded.