Property prices in coastal towns have plummeted as much as $614,000 since their peak as demand for regional markets cools thanks to high-interest rates, tighter lending requirements and a change in working requirements.
Following a five-year period of sharp growth in regional areas, in part driven by COVID-19 and work-from-home trends, many businesses are recalling their workers back into the office and the re-opening of national borders is seeing a return of urban population growth which is forecast to continue.
This shift has happened at a time when high-interest rates have caused an uptick in the number of people selling off their holiday homes while the pool of buyers is significantly reduced.
It is clear the COVID-inspired rush to the regions is over.
The coastal areas where property prices have fallen the most
CoreLogic data shows that home values in 27 coastal towns have plummeted by more than $200,000 from their pandemic highs two years ago, while 56 towns lost more than $100,000, the AFR reports.
Byron Bay is where the price falls have been the sharpest.
Property prices in the town plunged 24.1% since peaking two years ago, slashing $614,364 off the median to $1.94 million.
Home values in nearby coastal towns also fell sharply from their peaks.
Ocean Shores slumped 25.2%, cutting $405,381 from the median to $1.2 million, while Suffolk Park lost 23.7%, reducing the median $581,371 to $1.88 million.
Lennox Head tumbled 23.2%, shaving $406,567 off the median to $1.35 million, while Brunswick Heads sank 22.3%, taking $320,615 off the median to $1.11 million.
House prices in the Mornington Peninsula also posted large declines since the recent boom.
Portsea plummeted 10.2%, or down by $343,993. Sorrento tumbled by 12.6% or a $295,187 drop, while Finders and St Andrews Beach decreased by $232,000 each.
Despite the sharp declines, Portsea is still the most expensive coastal town in the country at $3.03 million median dwelling value, followed by Flinders at $2.33 million, and Sorrento at $2.05 million.
Source: CoreLogic/AFR
Meanwhile, home values in Lorne on the Great Ocean Road, Sunrise Beach on the Sunshine Coast, North Avoca and Wamberal on the Central Coast have lost between $238,000 and $300,000 since their peaks.
In contrast, the prices in the more affordable coastal towns in Queensland’s Wide Bay region such as Moore Park Beach, Elliott Heads and Burnett Heads have surged to new peaks.
Since the onset of COVID-19 to December last year, home values jumped 82.5%, 81.9% and 78.4% respectively.
But these regional areas surged so much during the pandemic that a drop in values was inevitable
“Many of these areas recorded a spectacular run-up in values during the worst of the pandemic, arguably overshooting the mark of what could be considered fair value,” Tim Lawless, CoreLogic research director, said.
“It was almost inevitable that these markets would see a drop in values following, in some cases, more than a 50% rise through the pandemic.
At its peak, Byron Bay, which has seen the sharpest falls, saw its prices soar 76.4%.
Suffolk Park jumped by 84.7% while values surged by 72.7% in Ocean Shores and rose by 64.75% in Brunswick Heads.
At their pandemic peaks, Portsea prices rose 65.3%, Sorrento increased 69.8% and Flinders lifted 63.7%.
“For buyers who were priced out of these markets during the upswing, the fact that values are now well below their record highs does create an opportunity to try again, but under market conditions that are arguably more skewed towards the buyer than the seller – quite the turnaround from the worst of COVID when homes were selling rapidly and prices were surging,” Lawless said.
Sellers agents in the areas have said listings have increased significantly compared to the previous year as the higher interest rates and cost of living had taken their toll on some vendors who decided to offload their property before they were forced to sell.
Going forward there is expected to be more stock coming into the market as the number of listings picks up sharply, which could create a good opportunity for buyers who still want to make the sea-change move to a coastal suburb.
What does this mean for you as a property investor?
In the medium term, our property markets will be underpinned by 3 factors:
- A significantly growing population
- Strong jobs creation
- Increasing the wealth of our nation.
I see the current market offering a window of opportunity for property investors with a long-term focus.
You see…we are at the early stages of a new property cycle, something that doesn’t happen very often.
Not that I suggest you try and time the market- this is just too difficult, and in truth, you’ve missed the bottom which occurred in early 2023.
But if the market hands you an opportunity like this, why not take advantage of it?
Taking advantage of the upturn stage of a new property has created significant wealth for investors in the past.
Moving forward, demand is going to outstrip supply for some time to come as we experience record levels of immigration at a time when we’re not building anywhere as many properties as we require.
At the same time, the cost of construction of delivering new dwellings will keep increasing not only because of supply chain issues and the lack of sufficient skilled labour but also because builders and developers will only commence new projects if they are financially viable and currently new projects will need to come on line at considerably higher prices than the current market price,
Of course, in due course, consumer sentiment will rebound when it becomes clear that inflation continues to fall and interest rates have peaked.
At that time pent-up demand will be released as greed (FOMO) overtakes fear (FOBE - Fear of buying early), as it always does as the property cycle moves on.
We are also going to be experiencing a prolonged period of strong rental growth - the rental crisis will only worsen further, with no end in sight.
Now I'm not suggesting taking advantage of tenants, what I'm suggesting is to recognise there is currently a problem (lack of rental accommodation) and provide a solution.
So rather than trying to hunt down a bargain, focus on buying an investment-grade property in an A-grade location because these types of properties are in short supply but are still selling for reasonably good prices… Plus they’ll hold their value far better in the long term.
While it might feel counterintuitive to buy at a time when there are so many mixed messages in the media, you can benefit from less competition, low consumer sentiment, minimal downside risk and minimal risk of oversupply.
