The regional housing boom is beginning to slow in trophy hotspots across New South Wales and Queensland after years of “phenomenal” growth, although overall the market is still outpacing capital cities.
CoreLogic’s latest regional market update found 10 regions registered modest value declines in the three months to July, with beach and country lifestyle areas the first to show market weakness after record-breaking rises during the pandemic.
Regional growth slowed from a peak of 6.4% in December 2021 to 0.2% over the three months to July. But it came as dwelling values jumped 17% overall in the past year, outpacing combined capitals which experienced a 5.4% rise over the same period.
The largest quarterly falls were in the Richmond-Tweed region, where house values dropped 4.5% , followed by Illawarra (down 3.5%) and southern highlands and Shoalhaven (down 3%).
In Queensland, the Sunshine and Gold coasts fell by 2.5% and 1.2% respectively. At the same time, units in the Gold Coast recorded the highest annual increase in values, up by 23.7%, predominantly due to “affordability”.
A median house value in the Gold Coast is $1.075m, about $400,000 more than the typical unit.
CoreLogic economist Kaytlin Ezzy said regional destination hotspots were weakening due to rate hikes, affordability constraints, falling consumer sentiments and high inflation, encouraging buyers to turn away from higher median valued markets.
“With high inflation and consecutive rate hikes impacting borrowing capacity, buyer demand is shifting towards the more affordable unit segment,” she said.
“As we move further into the downward phase of the cycle we would expect to see this decline in values to spread into more regional areas [and] across to units as well.”
Each of the areas with the greatest falls have a median house value in excess of $1m.
At the same time, rental stress in regional areas remains high.
Of the 20 NSW suburbs listed as in “desperate need” of rental supply, according to RentRabbit, 90% were in regional areas. Huskisson, a town in the wealthy Shoalhaven region, was among the top 20 suburbs, while Batemans Bay in the south coast ranked first.
Everybody’s Home CEO Kate Colvin said the greatest rental increases in Queensland and NSW in the past three years had been in regional areas, with parts of the Gold Coast experiencing a 15% increase.
“The drop in the past quarter is following phenomenal growth,” she said.
“Prices in a lot of these regions have increased so excessively over the past three years it seems like it has reached the maximum the market can bear.”
Colvin said those who’d stretched themselves financially to buy housing in the past year would be experiencing “a lot of housing stress” in the coming months.
“The challenge in the housing market is the ground has shifted for people,” she said. “Prices are significantly higher in a lot of these regional areas than someone on a low or modest income can afford.”
“These price increases have been driven over a number of years by government policy that’s encouraged speculative investment … we’ve seen through Covid a real growth in the housing-wealth gap.
“A more fundamental change in the housing market is needed which means more social and affordable rentals. It’s creating a huge welfare challenge but it’s also a huge handbrake on regional economies.”
It comes as lender ANZ has warned steep interest rate increases will “weigh heavily” on urban house prices, which could see a dramatic drop in coming months.
Senior economists at ANZ Felicity Emmett and Adelaide Timbrell on Tuesday predicted house prices in capital cities could fall by 18% by the end of next year before a modest 5% gain in 2024.
Sydney and Melbourne were expected to be hit with the sharpest decline, with an estimated fall of 14% this year and 6% in 2023 in Sydney, and 11% and 6% in Melbourne.
They said the expected increase in the cash rate to 3.5% by the end of the year would “significantly lift” household interest payments to as much as 11% of average share of household income a week.
