NSW coastal hotspots such as the celebrity playground of Byron Bay have been listed as overpriced, while regional towns such as Albury-Wodonga and Wagga continue to offer good value, according to new research.
Analysis from InvestorKit Founder, Arjun Paliwal, found NSW’s most populated coastal towns, including Newcastle, Wollongong, Shoalhaven, Port Macquarie and Byron Bay, to be the most unaffordable locations based on an interest rate of 3.5 per cent.
While regional towns such as Albury-Wodonga, Wagga and the Lower Hunter were deemed significantly ‘undervalued’ – indicating strong housing affordability and the potential for future capital growth.
Mr Paliwal said the large move away from the cities to the coastal communities had resulted in huge growth in prices in many areas.
“The great migration during the pandemic saw Sydneysiders relocate to coastal and regional towns in search of more attractive lifestyles,” Mr Paliwal said.
“With coastal areas experiencing price growth upwards of at least 75 per cent over the last decade, it has led to strong unaffordability in these local markets.”
“However, it’s good news for those in search of a tree change with the regional areas of Albury-Wodonga, Wagga Wagga and the Lower Hunter found to be undervalued markets.”
Sydney is overpriced
Sydney house prices are the most overvalued in the country, with the median house price now $1.118 million.
The analysis ranked the Sydney property market as overvalued by 26.9 per cent – meaning house prices are 26.9 per cent higher than the average household can afford.
If home loan interest rates were to increase one per cent, to 4.5 per cent, the market would exceed the affordable level by more than one-third (35.3 per cent).
Interest rate shocks are likely to be felt more in markets this overvalued.
Overpriced coastal towns
Mr Paliwal noted property prices in Newcastle, Wollongong and Shoalhaven had risen at least 89 per cent in the past decade.
He said Wollongong was 28.3 per cent overpriced with a median house price of $1.1 million.
Many of the most expensive areas had been skewed by investors who don’t live locally, he said.
“Byron Bay and the surrounding region has always been a popular holiday destination.
“The local house price and affordability are skewed by investors from outside the region but also the local luxury property market.
“Buyers also need to be mindful of the growth cycle, given it experienced 144 per cent growth in 10 years – indicating price growth potentially slowing ahead.”
Regional towns still affordable
Albury-Wodonga, Wagga and the Lower Hunter remain the most affordable for local buyers. However, investor interest is still driving up prices.
The median house price in Albury-Wodonga is $456,813, which is 47.2 per cent under the affordability threshold.
Wagga fairs even better with a $415,000 median house price, which is 69.4 per cent lower than the affordability measure.
Stean Nichols Director and Auctioneer Jack Stean said there was still strong buyer demand after what’s already been a strong period of house price growth in and around Albury-Wodonga.
“We’ve had incredible growth over the past 18 months and so far that has been continuing in the new year,” Mr Stean said.
“It seems like there is still a lot of interest and new buyers, however, there have only been two or three open homes, but there are still very good numbers and a lot of fresh faces.”
Mr Stean said locals made up a large portion of the market in Albury-Wodonga.
“We’re probably less reliant on the out of towners than a lot of areas, as Albury really thrives on its own community,” he said.
“But it is helped recently by the Sydney investors.”
In the Lower Hunter region the median house price is $481,000, which is 54.1 per cent below the affordability threshold.
The Agency Hunter Valley Principal Charlie Lund said investors from Sydney made up a significant amount of the buyer interest in the region.
“We’re still finding everyone from Sydney are coming out here looking for a lifestyle change,” Ms Lund said.
“We’re selling a lot of our rural properties so they can come out here for a weekender and for the lifestyle.
“They want space and tranquillity and they’re also buying investment properties.”
Ms Lund said her average transaction value had doubled in the past 12 months due to out of town buyers.
“Nearly everything I’m selling, I’m selling to Sydney buyers out of area,” she said.
“The Sydney buyers are coming in and they’re cashed up and our properties represent value. In terms of real estate, it’s the best thing that’s happened to the Hunter.”
Newcastle
Property prices in Newcastle have grown 89 per cent over the past 10 years, with the median house price sitting at $775,000, according to the latest November 2021 data.
At a 3.5 per cent interest rate, houses in the coastal town are 2.3 per cent lower than the average local household could afford.
However, if interest rates rise one per cent, house prices would become overvalued by 9.4 per cent.
With the number of monthly listings declining and sales volume rising – indicating extremely high market pressure – there is strong opportunity for investors looking to buy seeking capital growth.
Paired with very low vacancy rates, investors can expect a yield of 3.5 per cent and pressure on rents.
Wollongong
Wollongong property prices have risen 132 per cent in the past 10 years – among the highest across NSW’s most populated cities.
With its median house price $1.1 million, it has exceeded the local affordability level by 28.3 per cent, and 36.5 per cent at a 4.5 per cent interest rate.
“In the sales market, monthly sale volumes are soaking up the number of listings, indicating a supply crisis,” Mr Paliwal said.
“We expect higher price growth due to this. Whilst the market is overvalued, coastal market value analysis remains difficult due to the large drive by incomes not local to the market”
Shoalhaven
Shoalhaven’s median house price ($730,000) is higher than the local affordability threshold, following 10-year price growth of 119 per cent.
To make it affordable, prices would need to drop 13.3 per cent on a 3.5 per cent interest rate, and 23.2 per cent for a 4.5 per cent interest rate.
“Shoalhaven has always attracted Sydneysiders as a more affordable residing location with lifestyle upside,” Mr Paliwal said.
“Market pressure in Shoalhaven is much higher than a year ago, which could be attributed to city-goers moving to the coastal town during the pandemic. We can see that listings for sale are declining faster than the current pace of monthly sales volumes which is healthy, indicating a tightening sales market.”
Albury-Wodonga
Albury-Wodonga’s median house price ($456,813) is lower than the affordability threshold by 47.2 per cent and by 30.4 per cent if the home loan interest rate rose 1 per cent. Sales market pressure in the area is extremely high, given the declining number of sales listings and rise in monthly sales volumes.
As a result, strong rates of growth are expected.
“Albury-Wodonga, started its boom prior the pandemic, and it doesn’t look to be slowing down,” Mr Paliwal said.
“A strong local economy, strategic positioning of the city, local confidence due to the growth being seen over the years, all whilst still remaining affordable are all great signals for more strong years ahead.”
Kiama-Shellharbour
Following 99 per cent 10-year price growth, Kiama-Shellharbour’s median house price of $815,000 is higher than the affordability threshold by 10.5 per cent, and would be 20.7 per cent overvalued if interest rates increased one per cent.
Similar to other coastal regions, price and affordability may be influenced by the buyers from Sydney who relocated during the pandemic.
Those looking to invest in the area can expect a moderate yield of 3.5 per cent, with rental vacancies remaining below 2 per cent – indicating a tight market rental, paired with low levels of rental listings.
Wagga
Wagga was found to be the most undervalued area in NSW, with a median house price of $415,000.
It is 69.4 per cent lower than the affordability threshold.
Strong rates of sales growth are expected in Wagga due to the very low listings levels and high sales volumes.
Over the past 10 years, it has seen a 53 per cent increase in property prices, with potential for further growth.
Lower Hunter
The Lower Hunter’s median house price ($481,000) is lower than the affordability threshold by 54.1 per cent and by 36.5 per cent if the interest rate increased one per cent.
“Sales market pressure of Lower Hunter is higher than last year and at healthy levels,” Mr Paliwal said.
“Listings are continuing to decline, and sales volumes are rising albeit at a slower pace than previous quarters. The local market is well balanced with high affordability, healthy yields, and high market pressure.”
Coffs Harbour
Coffs Harbour experienced 100 per cent price growth over the past decade.
Its median house price ($710,000) exceeds the affordability level by 11.1 per cent and is 21.3 per cent overvalued at a 4.5 per cent home loan interest rate.
“As one of the main cities on the popular north coast of NSW, Coffs Harbour’s house price and affordability may be influenced by buyers from major cities and the varying coastal market demographics,” Mr Paliwal said.
“Market pressure in the area is also much higher than a year ago. Even with its valuation to local incomes, due to the influence from incomes elsewhere, price growth is expected ahead in 2022”
Richmond Valley-Coastal
Richmond Valley- Coastal includes the towns of Ballina, Brunswick Heads, Byron, Bangalow, Woodburn, Evans Head and surrounds.
It is the most overvalued populated area in NSW and has a median house price of $1.12 million.
For it to be affordable, house prices would need to drop 41.6 per cent on a 3.5 per cent interest rate and 48.2 per cent if the interest rate rose one per cent.
Port Macquarie
Port Macquarie’s median house price ($639,000) is lower than the affordability threshold by 0.4 per cent and would be overvalued by 11.8 per cent if interest rates increased one per cent.
As one of the main cities on the popular north coast of NSW, Port Macquarie’s house price and affordability may be influenced by the same factors as other coastal hotspots: retirees and capital city money inflow.
Market pressure in the area has been rising over the last year and continues to get stronger. Gaps between sales and listings trends indicate a further tightening market, which is very strong considering the recent price run.
“Coastal markets like Port Macquarie and Coffs Harbour, may likely finish 2022 as NSW top performers,” Mr Paliwal said.
