Mortgage stress dampens outer suburban markets

While inner city and metro coastal markets surge ahead in prices, the outer areas remain comparatively flat due to increasing financial pressure on first home buyers and low income families.

A trend that is becoming increasingly apparent is the widening gap between inner city / metro coastal markets and the outer suburbs. Drilling down into the RP Data – Rismark Index data reveals that inner suburbs and metro coastal markets are recording impressive growth while the outer fringe areas are recording lower levels of growth. In a nutshell, affluent areas are showing strong demand for properties as consumers in these areas are yet to reach their borrowing capacity. In contrast, affordability problems and mortgage stress is hurting the outer fringe where many of the buyers who would typically buy into these suburbs are at their borrowing limit or beyond their borrowing capacity.

This trend varies in significance from city to city, however the gap is most apparent in the Sydney market where the Sydney inner city and surrounding coastal suburbs are generally increasing by at least ten per cent per annum while the outer western and south western suburbs of Sydney and the Central Coast continue to be under pressure.

Melbourne is now showing very similar behaviour, where the affluent suburbs are generally experiencing strong price growth and the remainder are experiencing relatively flat markets, in some cases negative growth. Hume City and the Yarra Ranges are the most relevant examples with the price of some properties in these outer areas falling.

To a lesser extent this trend can be seen in Brisbane also. While Brisbane’s outer areas are still showing very healthy levels of growth – the worst performer is the Redland Shire where house prices have increased by 8.7 per cent over the year - it is the inner suburbs that have recorded the largest increases. As can be seen on the map, the outer southern areas of Logan and northern
Beaudesert have also recorded gains above 20 per cent, as these areas offer affordable real estate with more efficient transport links than the outer west or north.

As affordability continues to deteriorate demand for affordable dwellings in the outer areas of Australia’s capital cities will continue to wane. There are plenty of properties for sale, but few buyers who are willing or capable of buying into these markets.

An improvement in the performance of Australia’s outer fringe is largely dependent on investors returning to the market. ABS housing finance figures show that although investment finance commitments fell each month after a recent peak during June ’07, the level of investment dollars being committed to housing is 18 per cent higher than a year ago. While strong capital growth may not yet be a reality in many outer markets, rental yields are showing continual improvements in the outer fringe, making these suburbs increasingly attractive to investors.

There is also the market cycle to consider. Excluding Perth and Darwin, the growth phase of the cycle commenced in January this year. With previous cycles it has been demonstrated that growth typically starts in the most popular localities – typically inner suburbs and coastal locations – then ripples outwards as prices move out of reach for a large proportion of the market. In short, buyers look for the ‘next best suburb’. We will more than likely start to see the secondary locations such as the middle ring suburbs and outlying coastal locations becoming more popular in the new year as the ripple starts to spread outwards.

For those seeking properties further from the city, remember that areas serviced by quality transport infrastructure, both public and private, tend to show the best gains in price. Also look for proximity to large retail centres which provide the social and retail
infrastructure that most residents will use regularly.

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17,100 new properties were listed for sale last week.
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A total of 123,957 properties are currently listed for sale.
With a median national dwelling value of $448,300, we estimate that there is approximately $1.45 billion worth of commission available in the Australian residential real estate market.