After recording stronger growth and milder declines through the recent cycles, a new analysis of Australia's regional housing markets shows many areas have lagged their capital city counterparts over the past year.
CoreLogic's refreshed Quarterly Regional Market Update, which now analyses value and rent changes across the country's largest 50 non-capital Significant Urban Areas (SUAs), shows rising interest rates, higher cost of living pressures and normalising internal migration patterns appear to have hit the regions harder.
Since bottoming out in January, values across the combined capitals have risen to new record highs, while the combined regional market remains -2.5% below the peak recorded in May 2022.
Results across Australia's largest 50 non-capital SUAs vary, with 12 (8 in QLD, 2 in NSW and 2 in WA) recording new peaks in October, and an additional four sitting within 1% of their previous record highs.
Looking at quarterly value growth, WA's Bunbury recorded the strongest rise, up 4.6% over the three months to October, followed by NSW's Lismore, and St Georges Basin – Sanctuary Point, up 4.3% and 3.9% respectively.
Despite not taking out the top spot, NSW and Queensland were undeniably the best-performing states, each making up four of the top 10 positions in terms of quarterly value growth.
Queensland also made up half of the top 10 for annual value growth, with Bundaberg and SA's Mount Gambier both recording annual growth above 10%.
In contrast, regional Victoria saw some of the largest quarterly declines, with dwelling values across Warrnambool and Ballarat falling -1.6% and -1.5%, respectively, while the coastal town of Batemans Bay in New South Wales (-6.9%) recorded the largest annual decrease.
These markets are now seeing weaker growth conditions after strong gains during the pandemic upswing.
Similar to values, growth in regional rents has lagged the capitals.
Fuelled by strong net overseas migration, smaller household sizes and limited stock, the combined capitals has seen rents rise 1.8% over the past three months.
In contrast, normalising migration patterns have seen regional rents record a milder 0.8% rise.
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Across the largest 50 non-capital SUAs, 38 saw rents rise over the three months to October, with eight recording a rise of 3.0% or more.
Approximately an hour south of Adelaide, the coastal region of Victor Harbor – Goolwa recorded the highest quarterly increase in rents, rising 4.6%. This was followed by WA's Bunbury (3.9%), Queensland's Bundaberg (3.5%) and Maryborough (3.5%).
Three markets in WA (Kalgoorlie - Boulder, Bunbury and Busselton) and Victoria's Shepparton – Mooroopna saw rents rise by 10.0% or more over the year to October, adding between $40 and $60 per week to the median weekly rental value.
With the exception of Kalgoorlie - Boulder (1.2%), each of these markets recorded a vacancy rate below 1.0% in October.
Bunbury tied with Mount Gambier in South Australia to record the lowest vacancy rate among the regions at 0.4%.
At the other end of the spectrum, NSW's Bateman’s Bay recorded some of the weakest rental growth, with rents dropping -5.4% over the quarter – the largest decrease across the regional markets.
Bateman’s Bay also recorded the highest annual decline in rental values, falling -9.3% over the year.
Mining and port regions were well represented in the top 10 list for the highest gross rental yields.
WA's Kalgoorlie – Boulder region offered investors the highest gross rental yields at 9.3%, followed by WA's Geraldton at 6.7%, Queensland's Mackay and Gladstone at 6.5% and 6.4% respectively.
At the other end of the scale, one of Australia's most expensive SUAs, Bowral-Mittagong in NSW, returned both the lowest yield and the highest vacancy rate, at 3.1% and 3.2% respectively.
Following the RBA's decision to lift the cash rate another 25 basis points and the upward revision in inflation forecasts, there was a good chance of softer housing market conditions ahead.
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.
Higher interest rates, higher housing prices, higher rents and high cost of living pressures are likely to weigh on buyer sentiment leading into 2024.