Home Sale Profits Dropped $8 Billion

The nation’s housing sales fell by $8 billion in the three months to March when compared to the previous quarter according to data provider CoreLogic’s quarterly Pain & Gain report.

It comes as falling volumes and declining prices reflected a weakness likely to continue in the established homes market.

The fall in nominal profits from $38 billion in December echoed the decline in loss-making sales to $261 million from $355 million. Declines in housing values only kicked in after the March quarter, with the extent of loss-making sales predicted to increase.

CoreLogic’s analysis of 106,000 establish home sales in the March quarter showed the proportion of profit-making sales fell to 92.7% from the December quarter’s 94% peak figure.

The March quarter saw the first time profitable housing sales fell in a year and a half — unit profitability declining faster than houses.

The pandemic was the last cause of such a decline, in the three months to August 2020.

The major markets of Sydney and Melbourne are the cities most at risk due to higher interest rates, and therefore made the biggest contribution to loss-making sales over the quarter — the rate of unprofitable sales in both cities rising to 4.8%.

Hobart was the city with the highest proportion of profit-making sales for the 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.

Further the report fleshes out the different pace of growth between houses and apartments that has made units more affordable into the March quarter. Between the onset of Covid-19 in March 20202 and this year’s March quarter, combined capital city house values rose 25.8% compared to units at 10.6%.

Ray White’s chief economist, Nerida Conisbee says property price growth will continue next year and mortgage holders will need to “survive until 2025” amid expectations of higher interest rates for longer.

Ms Conisbee said strong population growth and a housing supply shortage combatted the impact of rising interest rates in 2023, leading to unusually strong price growth during a rate hiking cycle. The latest CoreLogic data shows home values have increased by more than 10 percent in the year to date in Sydney, Brisbane and Perth. Among the regional markets, price growth has been strongest in regional South Australia with 8.6 percent growth and regional Queensland at 6.9 percent growth.

“As interest rates head close to peak, it is expected that price growth will continue. At this point, housing supply remains extremely low and many people that would be new home buyers are being pushed into the established market,” Ms Conisbee said. “Big jumps in rents are pushing more first home buyers into the market and population growth is continuing to be strong.”

Ms Conisbee said interest rates will be higher for longer due to sticky inflation. “… we are unlikely to see a rate cut until late 2024 or early 2025. This means mortgage holders need to survive until 2025, paying far more on their home loans than they did two years ago.”

Buyers in coastal areas currently have a window of opportunity to take advantage of softer prices, Ms Conisbee said. “Look out for beach house bargains over summer but you need to move quick. In many beachside holiday destinations, we saw a sharp rise in properties for sale and a corresponding fall in prices. This was driven by many pandemic driven holiday home purchases coming back on to the market.”

3 key housing market trends for 2024

Here are three of Ms Conisbee’s predictions for the key housing market trends of 2024.

Luxury apartment market to soar

Ms Conisbee said the types of apartments being built have changed dramatically amid more people choosing to live in apartments longer-term and Australia’s ageing population downsizing. “Demand is increasing for much larger, higher quality, more expensive developments. This has resulted in the most expensive apartments in Australia seeing price increases more than double those of an average priced apartment. This year, fewer apartments being built, growing population and a desire to live in some of Australia’s most sought-after inner urban areas will lead to a boom in luxury apartment demand.”

Homes to become even greener

The rising costs of energy and the health impacts of heat are two new factors driving interest in green homes, Ms Conisbee said. “Having a greener home utilising solar and batteries makes it cheaper to run air conditioning, heaters and pool pumps. We are heading into a particularly hot summer and having homes that are difficult to cool down makes them far more dangerous for the elderly and very young.”

More people living alone

For some time now, long-term social changes such as delayed marriage and an ageing population have led to more people living alone. However, Ms Conisbee points out that the pandemic also showed that many people prefer to live alone for lifestyle reasons. “Shorter term, the pandemic has shown that given the chance, many people prefer to live alone with a record increase in single-person households during the time. This trend may influence housing preferences, with a potential rise in demand for smaller dwellings and properties catering to individuals rather than traditional family units.”