House prices in some regional areas could start falling as early as next year as the lockdowns end amid high vaccination uptake, and more people return to the cities, according to SQM Research.
SQM Research managing director Louis Christopher said the likelihood of the regional housing market peaking next year has risen despite the recent strong migration flow from the cities to the regions.
“I think the probabilities have increased that sometime next year, we will see a peak in prices and regional Australia will start to see falls,” he said.
“We’re now at a point where lockdowns are ending and travel is restarting, so I’m expecting to see a swing back towards the cities over time and there will be a move away from the regions.”
The latest Regional Movers Index by the Regional Australia Institute and Commonwealth Bank shows that the number of capital city residents moving to regional areas rose by 2 per cent during the September quarter, and 3 per cent from a year earlier.
In the 12 months to September, the bulk of net outflows from all capital cities came from Sydney and Melbourne, accounting for 47 per cent and 48 per cent of all net outflows, respectively.
The big coastal centres close to capital cities attracted the largest numbers of metro movers, with the Gold Coast taking 11 per cent of the total regional migration, followed by the Sunshine Coast with 5 per cent share, greater Geelong in Victoria with 4 per cent, Wollongong in NSW with 3 per cent and Lake Macquarie with 2 per cent.
But there are already signs that demand for regional housing has started to wane.
Dwelling prices in the region have eased back to 1.7 per cent by the end of September, from the 2.5 per cent growth recorded in March, data from CoreLogic shows.
“It’s likely the pace of capital gains will continue to ease across regional Australia as affordability becomes more challenging, stock levels rise and credit conditions tighten,” said Tim Lawless, CoreLogic’s research director.
“Prior to COVID-19, many of these regional areas showed substantial price gaps compared with their capital city counterparts. With many regional markets recording a higher growth rate in housing prices than the capitals, this affordability advantage has been eroded.”
Mr Christopher said inland regional areas were likely to see the largest outflow as life normalised in the cities.
“I think the outflow will probably come more from inland Australia rather than the coast as the coast tends to have more amenities and offer better lifestyle options compared to some areas inland,” he said.
“I expect many people will stay on the coast, particularly those who can arrange with their employer a permanent work from home deal.”
Nicola Powell, Domain’s chief of research and economics said regions within 150 kilometres from the central business districts would remain attractive for city dwellers.
“I think people are more open to commuting a slightly longer distance if they only have to go to the office twice a week, so regions within this range would still see strong demand,” she said.
Mr Lawless said while more companies were adopting formal hybrid working policies, it was reasonable to assume most employers will still expect their staff to be within a practical commuting distance to the office to allow for both time in the office and working from home.