The nation’s housing sales were $8 billion less profitable in the three months to March than in the previous quarter as falling volumes and declining prices reflected a weakness likely to continue in the established homes market, data provider CoreLogic said.
The fall in nominal profits from $38 billion in the December quarter echoed the decline in loss-making sales to $261 million from $355 million. But declines in housing values that only kicked in after the March quarter meant the extent of loss-making sales would increase, CoreLogic head of research Eliza 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,” Ms Owen said on Monday.
CoreLogic’s analysis of 106,000 established home sales in the March quarter showed the proportion of profit-making sales slipped to 93.7 per cent from the December quarter’s 94 per cent peak figure.
Profitable housing sales fell in the quarter to March for the first time in a year and a half – with unit profitability declining faster than houses – as price falls in Sydney and Melbourne pulled the capital city total lower.
The last such decline was in the three months to August 2020, when uncertainty about the pandemic unsettled the market.
Among capital cities the profit-making resales rate fell 60 basis points from 93.9 per cent in the December quarter to 93.3 per cent in the March quarter.
In a sign that the regional housing market is not suffering the same declines as capital cities, the profitability rate of the combined regions increased 10 basis points to 94.2 per cent.
We are likely to see the instance of nominal gains from dwelling resales erode throughout 2022.
— CoreLogic’s Eliza Owen
Sydney and Melbourne, the cities most vulnerable to higher interest rates, made the biggest contribution to loss-making sales over the quarter, with the rate of unprofitable sales in both cities rising to 4.8 per cent. The NSW capital was up 60 basis points and the Victorian capital was up 1 percentage point.
“Conditions in these markets have been slowing more sharply than other capital city markets, as average mortgage rates have trended higher,” CoreLogic said.
“Historic trends suggest these markets are more sensitive to changes in the credit environment due to higher property values, and a higher concentration of investment activity.”
Hobart was the city with the highest proportion of profit-making sales for a 15th straight quarter. Just 1 per cent of the Tasmanian capital’s sales made a loss in the March quarter, down from 1.6 per cent in December.
The report also shows the different pace of growth between houses and apartments that has made units more affordable made units more affordable continued into the March quarter.
Between the start of COVID-19 in March 2020 and the March quarter this year, combined capital city house values rose 25.8 per cent and units 10.6 per cent.
Unit sellers also made a larger median loss in the March quarter – $36,000 – compared with the median house resale loss of $29,400.
The biggest proportion of loss-making unit sales in the quarter was in Darwin (44.6 per cent), followed by Perth (34.4 per cent), Brisbane (13.4 per cent) and Melbourne (11.8 per cent).
The 0.1 per cent decline in national dwelling values in May, the first such broad-based decline since September 2020, meant resale losses were likely to pick up, Ms Owen said.
“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,” she said.
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/home-sale-profits-dropped-8-billion-in-march-20220620-p5av1k