CoreLogic revealed that Australian suburbs are still seeing properties sell for six or seven figure profits. But sellers may need to prepare for an upcoming drop in yields following the latest spot rate hike.
According to research by CoreLogic, in the three months to December 2021, several suburbs in Sydney’s Hills district saw profits from home sales reach nearly $1 million. A handful of Victorian suburbs were also on the list, but it was dominated by New South Wales properties.
Areas where each home sale generated a profit, 4Q21
|LGA region||Median profit ($)|
|Ryde, New South Wales||1,150,000|
|Hills County, NSW||970,000|
|Botany Bay, New South Wales||956 250|
|Sydney, New South Wales||910,000|
|Bayside, New South Wales||862,500|
|Glen Eira, Vic||837,500|
|Ku-ring-gai, New South Wales||830,000|
|Rockdale, New South Wales||822 250|
For units, Surf Coast in Victoria recorded the largest median sales profits in the December 2021 quarter of $623,000. Next come the working-class neighborhoods of Byron in New South Wales ($545,000) and Noosa in Queensland ($490,000).
Areas where each unit sold generated a profit, 4Q21
|LGA region||Median profit ($)|
|Surf Coast, Vic||623,000|
|Byron, New South Wales||545,000|
|Snowy Monaro, New South Wales||452,000|
|Wingecarribee, New South Wales||370,000|
|Kiama, New South Wales||357,500|
In a Australian Financial Review article, data from CoreLogic revealed that in the three months to December, vendors made a total of “$38 billion in resale profits nationwide.” This is the highest quarterly gain ever recorded by CoreLogic, up 28% from the previous quarter.
Are high sales profits here to stay?
While the popularity and profitability of prime suburbs is more persistent than other areas, many experts predict that we will see house prices fall across Australia this year.
After record price growth in recent years, home values in Sydney and Melbourne have already started to fall, albeit modestly.
CoreLogic data shows that House values in Sydney fell for a third consecutive month by 0.2% in April, 0.2% in March and 0.1% in February. Melbourne values were flat for April but technically down in three of the past five months.
This week, the Reserve Bank of Australia raised the key rate by 25 basis points to 0.35%, the first increase in more than 11 years. For a generation of homeowners and potential buyers, this is the first interest rate hike many will have experienced.
But in terms of house prices and sales profits, higher interest rates could mean more cold water poured into the housing market.
According to Tim Lawless, director of research at CoreLogic, “Housing affordability, rising fixed-term mortgage rates, increased listings in some cities and declining consumer sentiment have weighed on housing conditions. accommodation in the past year”.
“As the cash rate rises, variable mortgage rates will also tend to rise, reducing borrowing capacity and impacting borrowers’ serviceability ratings,” he said.
The big four banks, several of their subsidiaries and many competing lenders have already announced that they will pass on this rate hike to their variable rate mortgage customers. And spot rate hikes are expected to occur periodically over the next couple of years, which could further put a damper on house prices.
“With higher inventory levels and less competition, buyers are gradually returning to orders. This means more time to deliberate on their buying decisions and negotiate the price,” Mr. Lawless said.
In the meantime, owners looking to sell may want to keep an eye on the market, as well as sales records for similar properties in their area. Be realistic about your sales profit expectations if other recorded sales profits start to drop around you. You may also want to consider options to increase the value of your home, such as renovation projects like upgrading an outdated kitchen or adding more storage.
And where possible, it may also be worth considering pausing the sale if the average sale profit in your area is not where you would be comfortable selling a home at auction. Bear in mind that the Labor and Liberal governments have promised incentives to attract more buyers to the market after the election victory, and that overseas migration is expected to return to higher levels thanks to the easing of restrictions. Covid-19 restrictions, which could help stem the market downturn. Do your research and carefully consider market factors before deciding to sell.