Regional Property Market- What’s happening?

Prepared by Justin Fleming, Flemings Property Services.

Photographer I Rachael Lenehan Photography

What the Australian property market is currently experiencing is merely an orderly correction not a crash. And once again the regional markets are impacted much less than metropolitan markets. 

Looking back. 

In order to have a crack at predicting what the next 12 months will bring, we need firstly to consider what’s happened in the last 24 months.

CoreLogic reported a combined regional price growth of 40% for residential dwellings throughout 2021/22 resulting from:

  • Very low interest rates
  • Strong investment demand
  • Strong investment returns
  • Regional shift/second dwelling purchases

We saw record prices, pent up demand and a fear of missing out.

So, what’s changed?

The main drivers of the property market activity slow down are:

  • Rising inflation
  • Interest rate rises
  • Cost of living pressure
  • And serviceability buffers – the Australian Prudential and Regulatory Authority (APRA) are the governing body that determine what percentage (buffer) is applied to loan applications to ensure that the applicants can make repayments if rates go up. Currently at 3%. Normally 2 – 2.5%.

The rising interest rates are really the key factor here. To quell rising inflation, the Reserve Bank of Australia (RBA) effected eight  consecutive interest rate rises which did two things:

  1. Reduced perspective buyers’ borrowing capacity.
  2. Combined with the APRA buffer rates, kept some buyers out of the market altogether.

… and therefore, put downward pressure on property prices.

But none of that means the world is going to end. In fact once again according to CoreLogic in the year to December 2022 combined regional reduction in property prices was only 3%. The media hype may well have you thinking the reduction is far greater than that.

It’s not!

Photographer I Rachael Lenehan Photography

Where are we now?

Despite the RBA and some other economists predicting further significant reduction in property values it doesn’t seem to me that ordinary Australians agree with that sentiment.

Across our four offices we are dealing with lots of people who want to buy property. Yes, demand has slowed and yes, buyers have more choice than they did 12 months ago but the buyers are there, and the prices are holding. 

Terry Ryder, who is the Managing Director of Hotspotting said in December that “No one is forecasting prices rising like we saw in 2021. Rather most credible analysts are suggesting price growth that could be described as solid or moderate”

My 12 years of experience in regional real estate has taught me that the predictions by experts are not always reliable, often things turn out differently… That said, I have made it my responsibility to stay informed about these predictions, despite their tendency to miss the mark.

Now I am no economist but nonetheless here is my prediction for 2023.

  • Interest rates will peak in March/April
  • APRA will reduce the ‘buffer rate’ to between 2% and 2.5%
  • Perspective buyers will reassess their financial capability
  • Despite a lagging cautious approach, more buyers will enter the market
  • And greater competition will maintain current values or enact moderate growth.

Time will prove me (and others) wrong or right.

For more information on the current property market, please contact your local Flemings branch.