Regional markets feeling the pinch

Last week, we analysed capital city housing markets that had recorded price declines from their peak. This week we take a look at regional markets.

Regional property markets have, for the most part, recorded much lower capital gains than capital city markets since late 2007 as the GFC began to impact the global economy. According to the RP Data-Rismark Home Value Index results for April 2011, markets outside the capital cities have recorded a 1.8% fall in house values in the year to April 2011.

It has been well publicised that many coastal markets have been heavily impacted by reduced migration to ‘seachange’ areas and the poorly performing tourism sector, which has been further hampered by the high Australian dollar.

For the purpose of this analysis, we have only looked at markets that have recorded at least 50 sales in the most recent quarter.

Looking at the markets which have recorded the greatest fall in median house prices since their peak, the Moira council area in Victoria has seen the largest fall. The Moira Local Government Area (LGA), which sits on the Victoria and New South Wales border, has recorded a -23.2% fall in median house price from its historical peak.

Some fairly high-profile coastal regions are highlighted on the list and a number of these areas have recorded significant falls in median house prices. WA coastal markets have recorded the greatest falls: Busselton (-21.1%), Mandurah (-15.0%), Albany (-13.3%) and Bunbury (-13.2%).

Across the 30 markets listed, there is a fairly even split between coastal and non-coastal markets. Queensland has the greatest number of poorly performing regions (8), followed by New South Wales (7), Western Australia (6), Victoria and South Australia (4) and Tasmania (1). The vast majority of these regions listed have continued to record median house price falls over the past year as broader housing market trends have slowed.

Only nine regional markets across the country have current median house prices which are at their historic high. Like the list of worst performers, there is a fairly even split between coastal and non-coastal markets amongst the best performers. Although coastal markets are widely recognised as having underperformed in recent years, this is being largely fuelled by regions along the Queensland and Western Australian coastline whereas New South Wales and Victorian coastal markets have typically shown a stronger performance.

Of the 30 regions listed, New South Wales accounts for half of the regions on the top 30 list. Outside of New South Wales, the best performing regional markets were found within: Victoria (8), Queensland (4), South Australia, Tasmania and Northern Territory (all 1). Despite the West Australian residential property market’s well-publicised poor performance since 2007, not one region in that state has made the list.

Nationally, the residential property market is slowing both in capital cities and regional markets. Typically, the performance of the regional markets is heavily influenced by the performance of the capital cities. With very limited scope for capital gains during the short term, the prospects of a recovery over the coming year in many of these regional markets seems fairly unlikely. For those markets that have been performing relatively well, the prospects of a further surge in values over the year also seems quite unlikely. Although the mining sector is powering the national economy, some of these regions (Broken Hill, Kalgoorlie/Boulder and Mount Isa) have been among the weakest-performing regional markets.

With the Australian dollar remaining strong and seachangers fairly inactive, we anticipate many of the high-profile coastal markets will continue to underperform, hampered by a lack of demand, affordability constraints and a lack of willing buyers.

For buyers, there are opportunities in some well-know regions to buy at prices well below the peak, however, buyers must first determine if they believe prices will fall further and whether or not prices will return to previous peak levels in the future before making a decision to purchase.

Tim Lawless is research director at RP Data