What impact is the market shift having on our regional property markets?
As frequently reported in the media, the past few years have seen a significant urban-to-rural shift in many parts of Australia as people sought to escape the sense of confinement that crowded cities in lockdown only exacerbated.
Reaching its peak in March 2022, this migratory flow has started to slow down, with the number of people moving from our capitals to regional areas falling by 16.5% during the June quarter.1
In this short article, I’d like to have a look at what these massive movements have meant in terms of the property markets in some of our key areas and consider how these markets are evolving now that the flood of sea and tree changers is easing.
The pandemic years
What happened
The seismic COVID-induced shifts in our urban centres saw an unprecedented number of people moving into regional areas in search of more space.
Working and schooling from home freed many from the constraints of the daily commute and allowed them to consider moving to regional areas that offered larger homes, more open spaces, and lifestyle perks that were unavailable to them in the city.
Looking back over the data from the Australian Bureau of Statistics (ABS) shows that in 2020, a net 42, 971 Australians moved out of capital cities and into regional areas.2 That’s more than double the 2019 figure of 18,904.
This trend continued throughout 2021, with the ABS reporting that the population of regional Australia grew by 70,900 people, making it “the first time since 1981 that Australia’s regional population grew more than the capital cities,” according to ABS Director of Demography, Beidar Cho.3
What it meant for regional property markets
Not surprisingly, with so many more people flooding the markets, the balance between supply and demand shifted significantly, pushing prices up to record levels in many areas.
Comparing CoreLogic data over the past three years, we can see just how much the markets in regional areas have been affected. Let me give a few examples from regional areas across our footprint:
How things stand today
What’s happening
We’ve seen major changes across our property markets since lockdowns were lifted and the RBA began to raise interest rates in its efforts to combat spiralling inflation.
Although migration to regional areas remains higher than pre-pandemic levels, it has started to ease significantly since March.
People are slowly returning to their offices, schools are no longer Zoom-based, and the shortage of stock in many regions has forced potential sea and tree changers to rethink their plans.
In addition, the property cycle has shifted into a downturn phase, and many people are more hesitant about selling their city properties in a cooling market.
Perhaps even more importantly, increasing interest rates and inflationary pressures have dampened consumer confidence, affecting housing prices and clearance rates in both regional and urban areas, although, it must be said, some regions seem to be taking longer to register significant, or in fact any falls in market value than others.
What it means for regional property markets
Despite huge increases in value over the past few years, most regional properties are still relatively affordable compared with those in our capitals.
There is also still quite a bit of momentum in the urban-to-rural movement, primarily driven by millennials looking for affordable lifestyle properties. With stocks low, this momentum is driving competition among buyers and buoying up prices in many areas.
However, there are signs that the regions are starting to weaken, and the drops we have seen in city property values are likely to spread to the regions in the coming months as cost of living pressures and interest rate rises start to bite. It seems possible that the low supply and relative affordability in regional markets may offer a degree of insulation against the worst of the downturn.
Despite some areas experiencing slight dips in the past 3 months, CoreLogic data released in August 20227 show that house values continued to increase over the year to July 2022 in all 25 of the country’s largest non-capital city regions.
For regional homeowners looking to sell, this is good news, especially given the huge gains that they will have seen over the past couple of years.
Summing up
We’ve seen meteoric surges in our property markets across the regions over the past two years, and that growth is starting to slow in response to the current economic climate.
Migratory trends are shifting slightly, but there is still solid demand for regional properties as they offer affordability and lifestyle to the many who have become disenfranchised by city living.
For the moment, our regional markets are proving relatively resistant to the pressures affecting our capital cities, and it’s possible that they will weather the current downturn with only minor losses to dampen the extraordinary gains of recent years.
Sources
[2] https://www.abs.gov.au/media-centre/media-releases/net-migration-regions-highest-record
[3]https://www.abs.gov.au/media-centre/media-releases/more-growth-regions-during-pandemic [4]https://www.yourinvestmentpropertymag.com.au/top-suburbs/nsw/2500-wollongong#market-trends [5]https://www.yourinvestmentpropertymag.com.au/top-suburbs/nsw/2500-wollongong#market-trends [6] https://www.yourinvestmentpropertymag.com.au/top-suburbs/nsw/2576-bowral [7] CoreLogic Regional Market Update, August 2022, p3.
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