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Highest resale profitability since 2010

Strong selling conditions across most markets led to the highest level of profitable resales nationally during the March quarter since July 2010, a new CoreLogic report shows.

There were approximately 85,000 resales during the quarter and 94.3% of them were profitable, meaning they sold for prices above what the vendors originally paid.

But here’s where the numbers get really interesting.

Generally speaking, the data proves that the longer you hold your home or investment properties, the greater the capital gains you are likely to make.

For example, among the profitable resales of homes held for 30 years or more, the median capital gain was $780,000.

This compares to a median capital gain of $82,000 among the profitable resales of homes held for less than two years.

If you hold your home or an investment property for 8 to 10 years and sell at a profit, the median capital gain you can expect is $275,000.

This compares to a median gain of $345,000 if you hold your property assets for 14 to 16 years. What about 22 to 24 years? In this case, you’re likely to make a median $608,000 in capital gains.

With no capital gains tax levied on your principal place of residence, a property can become your single best financial investment while also being a wonderful home for you to enjoy over many years.

That’s why it’s imperative that you do your numbers very carefully before committing to a purchase. Always keep in mind that interest rates will move up and down, and you must be able to withstand the increases.

Remember a few years back when most fixed loan deals were 2% to 2.5%?  They were very attractive rates, but they were only in place for the first two or three years of a 25 to 30-year home loan. You have to consider that broader time horizon when crunching your numbers before buying.

It is concerning to see that the highest number of resales during the March quarter was for homes held for two to four years. Of the 85,000 resales, 15,115 were held for this short period.

The data doesn’t specify how many of these resales were unprofitable. But it does break it down for resold homes held for less than two years. There were 7,340 resales of homes held for less than two years in the March quarter, and 7.1% – or 520 homes – were sold for a capital loss.

Some of these resales likely occurred due to the ‘mortgage cliff’.  People came off those 2% to 2.5% fixed loans and rolled over to variable loans of 5% to 6%, which meant their repayments more than doubled from one month to the next.

Of course, sometimes things happen in life that force us to change homes earlier than planned. As the data shows, it is possible to make a capital gain on a property you have held for a short period, you just have to be very lucky with the timing of your purchase and sale to achieve it!

I think we’d all rather not rely on luck when investing our money.

So, it’s always good to bear in mind two of the golden rules of buying property. Buy within your budget, and buy with the intention of holding for long term.

By John McGrath, Chief Executive Officer of McGrath Estate Agents. 

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