More trouble ahead for former hotspots

So many of Australia’s regional towns and cities have seen their property prices become sorely mispriced through the mining boom.
melbourne-skylines-2_2649047Instead of seeing this as a reason to steer clear, too many property advisers saw the once-off boom as ‘proof” that regional property prices perform perform at least as well as those in capital cities (or better, some even claimed).

In short, they mistook a cyclical variation for a trend.

As a general rule, my high level view is that those regional centres located within a reasonably close range of the largest capital cities are likely to fare relatively better over time: Newcastle & Hunter, Wollongong, Beenleigh, Logan, Gold Coast, Sunshine Coast and Geelong, by way of some examples.

The further afield one travels, however. the greater the risk of a catastrophic correction might be.

Commodities crash

Last year I discussed here why I felt that coal mining regions in particular would be set for a disquieting correction, with both thermal and coking coal spot prices crashing and so much of Australia’s production unprofitable.

In reality, the latest Index of Commodity Prices shows that Australia’s key commodity prices have been clonked almost across the board, even in Aussie dollar terms.

commodities index

The torment is therefore set to spread well beyond only those regions which are being heavily impacted by coal mining redundancies.

Reports the Courier Mail:

“A mining bust in the heart of Queensland has wreaked havoc on the housing market, with some homes selling for less than the land value.

Queensland towns at the coal face of the mining downturn have seen median house prices tumble by up to 37 per cent for each of the past two years, with some houses on the market for a third of what their owners paid for them.

The downturn has been worst in central Queensland’s Isaac shire, which includes Moranbah and Dysart, but places such as Emerald, Mackay and Mount Isa have also taken a hammering, according to research by Simon Pressley, of Propertyology.

As recently as 2013 Emerald, Mackay and Mount Isa were recommended by some advisers as property hotspots, but as Simon Pressley rightly points out, the peaking of the commodity price cycle has seen those property markets cop “a hammering”.

Melodrama in Mackay

In a separate article the Courier Mail also really puts the boot into Mackay, melodramatically labelling it as “ground zero for the national mining bust”:

“Mackay is ground zero for the national mining bust as unemployment hits double figures and a mass exodus crashes the real estate market.mining

The city, 950km north of Brisbane, has weathered the fallout from depressed coal prices since late 2012, but a leap in unemployment, from 6 per cent in December to 10.3 per cent in January, has crystallised the severity of the district’s economic collapse.

Fitch ratings has identified a problem with mortgage delinquencies while an RP data report showed nearly 38 per cent of houses sold in the last quarter reported a financial loss for the vendor.

Up to 60 per cent of businesses experienced a drop in business and real estate agents had a backlog of more than 3000 houses on their books.

The Mackay-based federal member for Dawson, George Christensen, whose family has lived in the district for four generations, said the once-prosperous sugar town faced challenges as thousands looked elsewhere for jobs.”

Mackay employment data

This is an old favourite media trick when a hatchet job is deemed to be the requisite order of the day, quoting a 6 per cent unemployment rate from December 2014 and a 10.3 per cent unemployment rate for the very next month!

It is, of course, plainly ridiculous to quote cherry-picked month-to-month figures over the Christmas period from a data series which is not seasonally adjusted and, moreover is wildly unreliable.

That said, when charting the full range of data from the ABS survey and observing the unadjusted trend, the sugar capital’s lot does not look to be a happy one.

mackay-unemployment rate

The Department of Employment’s quarterly unemployment data tends to be somewhat smoother, but this data series lags and is only complete up to December 2014.

Here too, though, the unemployment rate trend is concerning, lolloping up to 11.6 per cent and rising.

Reverting to the ABS data, over the year to February 2015 total employment in Mackay was seen to shrink by more than 9 per cent, while the figure reported for total unemployed has almost tripled.

That’s not a sightly sketch for Mackay any way one chooses to look at it.

The wrap

More trouble for Queensland’s one-time favourite regional hotspots then, it seems.

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Only last month we saw that towns such as Dalby, Chinchilla and Roma are suffering the “death of a thousand cuts” as the mining capital investment boom unwinds, and we can probably add Blackwater to that ever-lengthening list too.

The real point of concern is that the mining capex contraction is, alliteratively speaking, much closer to its commencement than its conclusion – with the Icythys LMG project way up in the Northern Territory being one of the very few bright spots – and therefore we can expect to hear many more such stories over the next  two or more years.

As promised, this week I will return to the Detailed Labour Force regional unemployment data to isolate a dozen or so of Australia’s flailing labour markets.



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is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. Using a long term approach to building businesses, investing in equities, & owning a portfolio he achieved financial independence at the age of 33. Visit his blog

'More trouble ahead for former hotspots' have 2 comments

  1. Avatar for Property Update

    April 27, 2015 @ 2:31 pm Michael

    Dalby, Chinchilla & Miles may have run out of puff but there’s plenty more life in the Surat basin towns of Toowoomba & Roma.

    ” $10 billion dollar boom for towns of the Surat Basin ! ”



    • Avatar for Property Update

      April 27, 2015 @ 2:54 pm Michael Yardney

      Michael That’s intersting
      I’m not so optimistic for those towns


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