Regional markets still reeling from rising rates and shifting migration patterns

Despite regional housing values rising for the past five months, a new analysis of year-on-year performance shows many markets are still reeling from high interest rates and a shift in migration patterns back to pre-COVID levels.

CoreLogic’s quarterly Regional Market Updatewhich examines Australia’s 25 largest non-capital city regions, shows 18 areas recorded an annual decline in house values over the year to July 2023.

Of the seven markets where values rose, houses in the South East region of South Australia, which includes tourism hotspots Kangaroo Island, the Fleurieu Peninsula and the Limestone Coast, had the largest annual growth for the fourth consecutive report. Values lifted 9.1% in the year to July, a small dip from 10.8% three months ago.

Queensland was a big winner when it came to regional market capital growth, including Central Queensland (2.7%), neighbouring Mackay–Isaac–Whitsunday (1.2%), Toowoomba (0.7%), and Cairns (0.5%), with Bunbury, WA (3.7%) and New England and North West, NSW (1.6%) rounding out the top seven.

In contrast, the weakest conditions over the past year persisted in NSW lifestyle markets Richmond-Tweed (-20.4%) and Southern Highlands and Shoalhaven (-15.0%), although the annual pace of declines is easing. Victoria’s Ballarat (-11.2%) and Geelong (-10.4%) were the only other regions included in the report to record a double digit decline in house values over the past year.

CoreLogic Australia Head of Research, Eliza Owen, said despite regional Australian dwelling values rising for the past five months, values remain -5.6% below this time last year, and sales volumes are down -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,” Ms 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,” she said.

Every region recorded a decline in house sales volumes over the 12 months to May. Townsville recorded the smallest decline at -11.3%, followed by Central Queensland (-12.7%). Six regions recorded a decline of at least -30%, with five of these located in NSW.

The Southern Highlands and Shoalhaven region recorded the largest drop in sales (-33.6%), largest vendor discounting rate (-6.7%), and longest time on market (79 days), which Ms Owen says is almost twice as long to sell than a year ago.

Unit markets

Five of Australia’s regional unit markets recorded positive annual growth in the 12 months to July 2023, led by NSW’s Riverina region for the second consecutive time. Unit values rose 18.7%, more than double the second and third strongest markets Cairns (9.2%) and Hume, Victoria (9.1%).

At the other end of the scale, Launceston and North East (Tas) and Richmond-Tweed recorded the equal largest decline in unit values over the past year of -11.4%.

Unit sales volumes declined in all regions over the year to May. Bunbury recorded the smallest decline (-4.2%) while Southern Highlands and Shoalhaven recorded the largest (-42.5%).

Toowoomba recorded both the shortest time on market at just 22 days and lowest vendor discounting rate of -2.0%. Units across NSW’s Mid North Coast were the slowest to be sold at 62 days while vendors across the Launceston & North East region are offering the largest discounts at -6.2%.

Regional outlook

Ms Owen said undoubtedly the easiest way to characterise the markets most impacted by rate rises is 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,” Ms Owen said.

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