Home prices continue to rise, regional markets more likely to return a profit

Despite numerous economic headwinds, the Aussie property market held firm last year, with recent CoreLogic data showing the rate of profit making sales in capital cities increased over the September quarter.

According to the research firm, the proportion of profitable sales nation-wide was 88.1% over the period, putting an extra $24.8 billion in the hands of sellers. This was up from 87.2%, or $19.8 billion, in the June 2020 quarter.

However, the number of non-profitable sales also went up in September, with the total value of losses coming in at 1.2 billion, up from $885 million in the previous quarter.

Hobart was the best performing city, continuing a trend that has lasted since March 2018. Meanwhile, Melbourne, which was still reeling from the effects of a prolonged lockdown, was the only capital city to post a decrease in the rate of profitable sales.

CoreLogic Head of Research Australia, Eliza Owen noted that regional areas tended to outperform capital cities, particularly coastal regional markets such as Geelong, Illawarra, and the Sunshine Coast.

“The combined regional Australian market saw the rate of profit making sales increase 150 basis points, to 89.2% in the September quarter, while the rate of profitability across capital city markets expanded 30 basis points, to 87.2%,” she said.

The data also confirmed that the market rewards patience, with properties that were held for longer before resale more likely to return a profit.

“Over the September 2020 quarter, the median hold period of resale events across Australia was approximately 8.5 years. For profit making sales, the median hold period was 9 years, while loss making sales were typically held for 6.7 years,” said Owen.

Will property values continue to rise?

According to Owen, “record low mortgage rates, a faster than expected economic recovery and relatively low cases of COVID-19” are expected to boost profitability over the coming quarters.

That view is shared by the Reserve Bank of Australia, which recently released documents showing it believes property prices could rise by as much as 30% over three years if interest rates remain at their current low levels.

The lift in asset prices is expected to boost consumer activity, particularly for "credit-constrained households” with very little breathing room in their budgets.

But the Bank also acknowledged the risks associated with low interest rates, including looser lending standards, overly optimistic assessments of risk, and an uptick in Australians taking out loans that they may struggle to service.

If investor confidence is restored and construction activity picks up, a potential oversupply of new properties could also place downward pressure on prices.

For more information about mortgage and lending trends, visit our home loan statistics page. And for an idea of where interest rates currently sit, check out our home loan comparison page, or browse the selection below.

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