Many regional markets are still dealing with the impact of rising interest rates and changing migration patterns
Despite a rise in regional housing values over the past five months, many markets are still grappling with the impact of high interest rates and shifting migration patterns, according to new data from CoreLogic.
The quarterly Regional Market Update by CoreLogic focuses on Australia's 25 largest non-capital city regions. The report indicates that out of these regions, 18 areas experienced a decline in house values when comparing the year-on-year performance up to July 2023.
Positive performers
Among the seven markets where values did rise, the South East region of South Australia stood out, demonstrating the highest annual growth for the fourth consecutive report. This region, home to popular tourism hotspots such as Kangaroo Island, the Fleurieu Peninsula, and the Limestone Coast, saw a 9.1% increase in house values over the year to July, slightly lower than the 10.8% growth recorded three months earlier, CoreLogic reported.
Queensland emerged as a winner in terms of regional market capital growth, with Central Queensland (2.7%), Mackay–Isaac–Whitsunday (1.2%), Toowoomba (0.7%), and Cairns (0.5%) all experiencing positive growth. Bunbury in Western Australia (3.7%) and New England and North West in New South Wales (1.6%) also made it to the list of top-performing regions.
Challenges persist
On the other hand, certain regions faced ongoing challenges throughout the year. Richmond-Tweed in New South Wales (-20.4%) and Southern Highlands and Shoalhaven (-15%), two popular lifestyle markets, experienced the weakest conditions. However, the report noted that the pace of declines in these areas has started to ease. Ballarat in Victoria (-11.2%) and Geelong (-10.4%) were the only other regions included in the analysis that saw double-digit declines in house values over the past year.
Eliza Owen (pictured above), head of research at CoreLogic Australia, said that while regional dwelling values have been on the rise for the past five months, they remain 5.6% below the levels seen at the same time last year. Furthermore, sales volumes have dropped by 21.3%.
“While the market is starting to recover, value growth is largely being led by capital city markets, reflecting milder housing demand across regional Australia as demographic patterns normalise,” Owen said. “Year-on-year growth was hard to find across regional Australia in the past 12 months. The markets that saw an increase were largely more affordable, and were more rural. Presumably, lower value assets have been more resilient to increases in interest costs because they require lower indebtedness.
“Additionally, targeted migration programs also tend to focus on parts of regional Australia as a pathway to permanent residence, so some of the more rural, regional parts of the country may have seen sustained housing demand as international travel restrictions have lifted through 2022,” Owen said.
The report also suggested that targeted migration programs, aimed at providing a pathway to permanent residence, have played a role in sustaining housing demand in certain rural and regional parts of Australia as international travel restrictions have eased.
Sales volumes for houses in all regions declined over the 12-month period ending in May. Townsville recorded the smallest decline at 11.3%, followed by Central Queensland (-12.7%). Five regions in New South Wales experienced a decline of at least 30%, with the Southern Highlands and Shoalhaven region taking the lead with a 33.6% drop in sales, according to the report. This region also had the highest vendor discounting rate at 6.7% and the longest average time on the market at 79 days, nearly double the time it took to sell properties a year ago.
Unit markets
In terms of regional unit markets, five regions in Australia experienced positive annual growth in the 12 months leading up to July 2023, CoreLogic reported. The Riverina region in New South Wales took the top spot for the second consecutive time, with unit values rising by 18.7%. Cairns (9.2%) and Hume, Victoria (9.1%), were the second and third strongest markets, respectively.
Conversely, Launceston and North East in Tasmania and Richmond-Tweed in New South Wales recorded the largest decline in unit values over the past year, both at -11.4%.
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Unit sales volumes declined across all regions in the year ending in May, CoreLogic reported. Bunbury had the smallest decline at -4.2%, while the Southern Highlands and Shoalhaven region experienced the largest decline at -42.5%.
Toowoomba boasted the shortest time on the market for units, with an average of just 22 days, and the lowest vendor discounting rate at -2.0%. Meanwhile, units in the Mid North Coast region of New South Wales took the longest time to sell, with an average of 62 days. Vendor discounting rates were highest in the Launceston and North East region at -6.2%.
Looking ahead
Owen said that the impact of rising interest rates on housing market performance is largely determined by the price point.
“The higher the value of the market, the more likely it’s seen poorer performance in the past year. But the good news for sellers is that these markets appear to have passed through the depths of the downswing,” she said. “Using Richmond-Tweed houses as an example, while the asset has seen an annual decline of -20.4%, this is up from a year-on-year fall of -24.2% in the 12 months to April. In two of the past three months, houses in this market have actually increased.
“While there’s still a few headwinds on the horizon for housing market performance more broadly, popular high-end markets could start to stabilise as mortgage rates move closer to a peak, and capital city markets become more expensive.” she said.
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