Regional housing markets lagging behind capitals – report

Rising interest rates, cost-of-living pressures impact regional Australia

Regional housing markets lagging behind capitals – report

Australia's regional housing markets have lagged behind their capital city counterparts over the past year, according to CoreLogic’s latest Quarterly Regional Market Update.

While the combined capital cities have experienced stronger growth and milder declines, rising interest rates, higher cost-of-living pressures, and normalising internal migration patterns have impacted the regional markets.

Although values in the combined capitals have reached new record highs since bottoming out in January, the combined regional market remains 2.5% below the peak recorded in May 2022, CoreLogic reported. However, the analysis reveals variations across Australia's largest 50 non-capital significant urban areas (SUAs). Twelve SUAs, including eight in Queensland, two in New South Wales, and two in Western Australia, recorded new peaks in October, with an additional four sitting within 1% of their previous record highs.

In terms of quarterly value growth, Bunbury in Western Australia saw the strongest rise, with a 4.6% increase over the three months to October. Lismore and St Georges Basin-Sanctuary Point in New South Wales followed closely with growth rates of 4.3% and 3.9%, respectively. Queensland and New South Wales emerged as the best-performing states, with four of the top 10 positions in terms of quarterly value growth. Additionally, Bundaberg in Queensland and Mount Gambier in South Australia recorded annual growth rates above 10%.

On the other hand, regional Victoria experienced some of the largest quarterly declines, with Warrnambool and Ballarat seeing dwelling values fall by -1.6% and -1.5%, respectively. Batemans Bay in New South Wales recorded the largest annual decrease at -6.9%.

“These markets are now seeing weaker growth conditions after strong gains during the pandemic upswing,” said Kaytlin Ezzy (pictured above), CoreLogic economist and report author.

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While three in four of the largest SUAs saw a rise in dwelling values over the year, only one market experienced an increase in sales activity. Lismore in New South Wales saw a 16.5% rise in home sales from a flood-affected low base. Gladstone in Queensland had the smallest decline in sales volume, falling just -1.2% compared to the previous year. Kalgoorlie-Boulder and Geraldton in Western Australia recorded mild declines of -3.1% and -6.1% respectively. The remaining markets all saw double-digit drops in sales activity, with Nelson Bay in New South Wales experiencing a decrease of over 30%, CoreLogic reported.

Rental markets

Regional rental growth has lagged behind the capitals, according to CoreLogic.

While the combined capitals saw a 1.8% increase in rents over the past three months, regional rents recorded a milder rise of 0.8% due to normalising migration patterns. Among the largest 50 non-capital SUAs, 38 saw rents rise over the three months to October, with eight recording a rise of 3% or more. Victor Harbor-Goolwa in South Australia recorded the highest quarterly increase in rents at 4.6%, followed by Bunbury in Western Australia (3.9%), and Bundaberg and Maryborough in Queensland (both 3.5%).

Mining and port regions featured prominently in the top 10 list for the highest gross rental yields, CoreLogic reported. Kalgoorlie-Boulder in Western Australia offered investors the highest gross rental yields at 9.3%, followed by Geraldton in Western Australia (6.7%), Mackay and Gladstone in Queensland (6.5% and 6.4% respectively). On the other hand, Bowral-Mittagong in New South Wales had the lowest yield at 3.1% and the highest vacancy rate at 3.2%.

Regional outlook

Looking ahead, Ezzy said that softer housing market conditions may be on the horizon due to the Reserve Bank of Australia's decision to raise the cash rate and the upward revision in inflation forecasts.

“We're already seeing an easing in the pace of monthly growth across our largest cities, and this is a trend we can expect to see playing out more broadly at least until interest rates top out,” she said. “Higher interest rates, higher housing prices, higher rents and high cost-of living-pressures are likely to weigh on buyer sentiment leading into 2024.”

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