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Heat leaves regional hot spots as popular markets outpace wider downturn

Posted by societyrealestate on 21/11/2022

The COVID-induced boom for Australia’s regional housing market has burst, with several regional markets that had the strongest value growth through the upswing now among the fastest declining markets, said CoreLogic.

The Regional Market Update, which examines Australia’s 25 largest non-capital city regions, shows house values in six of the most popular lifestyle markets recorded falls of -6% or more last quarter, including Richmond-Tweed (-11.7%), Southern Highlands and Shoalhaven (-7.1%), Sunshine Coast (-7.1%), Gold Coast (-6.4%), Illawarra (-6.1%) and Newcastle and Lake Macquarie (-6.0%).

All markets analysed recorded a quarterly decline in house values, with the exception of Central Queensland (0.1%), SA’s South East (0.0%) and WA’s Bunbury (0.0%). House values in Richmond-Tweed (-7.8%), Illawarra (-1.9%), and Ballarat (-0.5%) are also below the levels recorded this time last year, while values across Newcastle and Lake Macquarie are flat year-on-year (0.0%).

Regional NSW also dominated the worst performing house markets across a range of different metrics. Southern Highlands and Shoalhaven recorded the largest decline in sales volumes (-27.5%) and the highest vendor discounting rate (-4.9%), while the New England and North West region clocked up the longest time on market at 43 days.

CoreLogic Economist Kaytlin Ezzy saidvalue declines initially seen across the more expensive capital city and regional markets have become more geographically broad-based over the three months to October, with 87.8% of the regional house and unit markets analysed recording a quarterly decline in values.

“Consecutive interest rate rises, persistently high inflation, and waning consumer sentiment saw the pace of value declines accelerate across regional Australian property markets,” Ms Ezzy said.

“It is unsurprising the Richmond-Tweed region recorded the strongest decline in house values. Throughout the COVID period, values skyrocketed, rising more than 50% and taking the median house value to more than $1.1 million. However the impact of this year’s floods, coupled with seven consecutive rate rises, has seen house values fall in the region by nearly -16% since April.”

The best performing regional house market was SA’s South East, where values are 21.7% higher over the past year, followed by the Riverina (20.5%), and New England and North West (19.8%). Townville had the highest growth in sales volumes (21.6%), while Toowoomba had the shortest days on market (13). Victoria’s Latrobe Gippsland region and NSW’s Central West recorded the lowest vendor discounting rate at -2.7%.

Unit markets

While all but two of the 16 regions analysed saw an annual increase in unit values, 14 saw a quarterly fall, more than double the number of regions that declined in values over the three months to July.

Southern Highlands and Shoalhaven (-7.7%) recorded the largest quarterly fall in unit values, followed by Sunshine Coast (-6.0%), NSW’s Hume region (-5.5%) and Richmond-Tweed (-5.2%). Townsville and Richmond-Tweed were the only regions to record a decline in unit values over the past year, down -2.6% and -0.2% respectively.

Townville also recorded both the longest time on market (42 days) and highest vendor discounting rate (-4.4%), while unit sales volumes in Southern Highlands and Shoalhaven plummeted -35.8% year-on-year.

Queensland’s Cairns and Toowoomba regions recorded the highest annual increase in unit values over the 12 months to October 2022, up 18.9% and 17.4% respectively, and were also the only two regions to record an increase in unit values over the quarter.

Regional Queensland also dominated the best performing unit markets across a range of different metrics. Mackay-Isaac-Whitsunday recorded the highest annual change in sales volumes (39.2%), while Toowoomba had the shortest time on market (19 days). NSW’s Hunter Valley excluding Newcastle had the lowest vendor discounting rate at -1.9%.

“While unit values have not been immune to the downturn, units have largely been more resilient than houses through the downswing to date. If this trend of house values falling at a faster pace than unit values persists, we could see some demand shift towards the detached segment as the value premium for houses shrinks,” Ms Ezzy said.

Regional outlook

Ms Ezzy said around half of the markets analysed are still seeing houses and units transact faster than over the 12 months to October 2021. However, properties are now sitting on the market for around two to three days longer than they were over the year to July, demonstrating a continued softening in demand.

“Sales activity has continued to soften over the quarter, with only a few regions, predominantly in northern Queensland, recording an increase in annual sales volumes. While down compared to the previous year, it’s important to remember that last year was one of the busiest sales periods on record, and the majority (76%) of regional markets analysed are still recording higher annual sales volumes compared to their previous five-year averages,” she said.

On the supply side, the flow of regional listings has been relatively lacklustre this spring selling season, which has kept total listings levels fairly tight, despite a slowdown in sales activity.

“While the negotiating power across Australian regional markets is slowly transitioning to the buyer, it is likely tight supply is insulating the downturn to some extent,” she said.

Ms Ezzy added the outlook for Australia’s regional markets remains skewed to the negative, with values expected to continue declining while interest rates are rising.

“The lack of a typical spring listings surge is positive, in that we are yet to see material signs of a rise in distressed listings. However, as the cumulative rise in the cash rate approaches the serviceability buffer of 3% which most borrowers were assessed under, we could see an increasing number of regional home owners come up against affordability pressures in terms of mortgage serviceability.”

Source Corelogic

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