Home Insights Why aren’t home prices falling as quickly in regional areas as capital cities?

Why aren’t home prices falling as quickly in regional areas as capital cities?

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A sharp rise in interest rates triggered a sharp rebalancing in the housing market after last year’s extreme move, but some sectors have held up relatively well.

The provinces continued to fall at a slower pace than the capital, rising 0.06% in October and falling 0.11% for the capital as a whole.

Home prices in the capital are now 2.1% below levels a year ago and up 24.4% from pre-pandemic levels. In rural Australia, he is 6.5% higher than a year ago and up 46.6% from his March 2020 when Covid started.

Why are so many local pockets holding up so well?

Statistical Area Level 4 (SA4) refers to Territory geographic regions defined by the Australian Bureau of Statistics for national data output. Rurally, SA4 tends to be sparsely populated (100,000 to 300,000) and regions are geographically, socially and economically similar.

Analysis of these SA4 regions shows that the decline in house prices in rural Australia is less widespread than in the metropolitan areas. Of the 42 regions classified as SA4, 28 saw prices fall from their peaks, and 41 of the 46 metropolitan areas saw home prices fall from their peaks.

Demand for more affordable properties and larger homes is underpinnings, and as a result, rural areas will do better than metropolitan areas in 2022.

Many regions have held up well against falling prices.Photo: Getty


Additionally, conditions remain tough for local buyers, with the number of properties for sale still well below pre-pandemic levels.

This means that local buyers have less choice and less bargaining power. This is another reason why prices have fallen slower in the region than in the capital.

That said, there are some regional pockets where the shine seems to have faded.

Regions where prices are falling fastest

Interest in lifestyle properties has surged during Covid as more people seek larger homes and spaces, especially in rural locations.

With the remote work boom, many people no longer need to be tied to an office, which has greatly increased the value in places where oceans and trees change. Many Australians have taken advantage of relatively affordable housing in rural areas compared to their respective capital cities.

But with interest rates soaring and buyers’ borrowing power so low, hotspots in generally high-value areas are seeing the most rapid price declines.

Conditions in the housing market are slowing as consumer confidence declines and mortgage repayment costs rise. The lifestyle and amenity-rich regions of New South Wales and southeast Queensland, which were thronged with urban buyers during the pandemic, saw prices drop first.

The SA4 regional market with the biggest price drop to date is Richmond Tweed, home to the popular Byron Bay. It was also affected by the floods earlier this year. House prices have fallen 6.3% from their peak.

It was followed by Southern Highlands and Shoalhaven, where tree changers were looking for spaces such as Bowral. House prices in the area have fallen 5.3% since their peak.

In fact, rural NSW is home to the worst performing regions, with four of the top 10 rural SA4 experiencing the most price declines.

The Greater Sydney region accounts for 80% of SA4 in the top 10 cities with the most price declines. Higher interest rates and lower borrowing capacity will most affect high-interest areas, with Sydney feeling these effects.

Other markets that thrived during the pandemic, such as the Sunshine Coast, Geelong and the Illawarra, have also seen a sharp slowdown in house price growth.

Market caps often experience larger price drops. Prices are now plummeting in higher value areas within Australia’s rural areas, similar to the trend seen across the capital.

But in most of these markets, home prices are still up by more than 50% from pre-pandemic levels.

Interest rates have risen sharply, mortgage costs have risen, and the expectation that home prices will continue to fall has combined to weigh on buyer demand, clearly contributing to the slowdown in activity.

This will weigh on demand and property prices going forward as interest rates continue to rise and mortgage affordability deteriorates. The region as a whole continues to outperform the capital, but prices continue to fall as interest rates rise and borrowing capacity declines.

However, in more affordable regions with limited supply, competition may still be fierce, resulting in a slower pace of price declines.

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