This week, we’re taking a look at mining towns after a house in the mining town of Port Hedland passed in at auction for $360,000 on the weekend.
That same house was reportedly bought four years ago for $1.3 million.
It’s a very sobering result and it could be a sign of worse to come in the Pilbara region if the iron ore price keeps dropping given burgeoning global supply.
The modest 1960s fibro home on a 600-sqm block failed to attract buyers, with the Port Hedland property market especially vulnerable to the commodities downturn as it is one of the world’s biggest iron ore loading ports.
The plunge in the iron ore price and slowing Chinese economy has stifled mining activity and stymied demand for property in Port Headland and other mining towns around the nation.
So how much have prices dropped?
This graph of asking prices for three-bedroom houses in Port Headland reveals prices for three-bedroom houses shot up in 2012 to $1.3 million, but have tumbled to just over $800,000 this year.
Given last weekend’s auction result, house prices could fall a lot further before they stabilise.
What about rents?
The drop in house prices follows plunging demand for rental properties as fly-in workers fly out and stay out.
While demand was super hot during the mining boom, now that the mining sector has contracted sharply, thousands of jobs and workers have disappeared from Port Headland and other mining towns, slashing demand for property and rents.
This chart of asking rents for houses in Port Headland highlights the staggering drop, from a peak of $3000/week in early 2012 to a more modest asking rent of $1252/week in February 2015, according to SQM Research data.
Like house prices, rents will probably fall further given the mining downturn is ongoing and China’s economy is still slowing.
In Karratha, another Pilbara town, the story is the similar.
While house prices never soared to the extent that they did in Port Headland, this graph shows that asking prices for three-bedroom houses have plunged 40% over the past three years, down to around $457,000 this week.
Asking rents for houses have fallen from a peak of $2000/week in 2011 to around $900/week now.
Port Headland agent Barry Walsh from Jan Ford Real Estate told the ABC the auction showed that people could now afford to buy homes in Port Hedland again, and the town might be able to rely on a local workforce and fewer fly-in, fly-out workers.
That’s some good news for locals.
But for the property investors who got caught up in the mining boom, the sting will be very painful.
It’s a reminder that if you are buying property, the risks of falling prices are very real if the economic cycle turns.
Especially in boom and bust mining towns where what goes up, invariably comes down.
But even in capital cities, the mining downturn has fed through to property.
Take a look at the markets in Perth and Darwin.
The number of Australian residential property sale listings have jumped in Darwin and Perth as the commodities downturn hits home.
Darwin recorded the highest monthly increase in stock levels of all the capital cities, increasing by 6.7% during January 2015 to 1,843 and up a huge 34.2% year-on-year.
Perth followed with a monthly rise in real estate listings of 5.4% to be up 21% year-on-year.
As one can see with SQM Research listings and asking prices indexes, Perth and Darwin appear to be in deep trouble.
The link with China is very real.
But is it all bad news?
But still, Chinese iron ore prices fell 13 percent in January, suffering the biggest monthly fall since May 2013 due to oversupply.
Some analysts say that the drop in commodities prices could trigger more demand from the world’s biggest economy.
For our iron ore towns, ongoing high global supply will likely mean even weaker property demand and prices.
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