NSW’s most ‘overvalued’ and ‘undervalued’ towns revealed

Meanwhile, data showed that regional towns such as Wagga Wagga and Lower Hunter are significantly “undervalued”, indicating strong housing affordability in these areas.

The research, which analysed the 25 largest regional areas in Australia, determined whether a suburb was unaffordable (overvalued) or affordable (undervalued) by looking at home loan serviceability and market pressure analysis. 

An “affordable house price” was based on the average local income of a dual-income household and loan affordability of 30 per cent net income, among other factors. 

Mortgage interest rates were also factored into home loan affordability. The property researcher and buyers agency calculated the maximum house price at which home loan repayments remain affordable under two mortgage rate scenarios of 3.5 per cent and 4.5 per cent.

Arjun Paliwal, founder and head of research at InvestorKit, pointed out that the influx of Sydney residents to coastal markets had driven up unaffordability in the last 18 months.

“The great migration during the pandemic saw Sydneysiders relocate to coastal and regional towns in search of more attractive lifestyles. 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,” he said. 

But the expert noted that people in search of a change of scenery, as well as investors hunting for bargains, could still find pockets of affordable areas if they look inland.

“[It’s] good news for those in search of a treechange with the regional areas of Albury-Wodonga, Wagga Wagga and the Lower Hunter found to be undervalued markets,” Mr Paliwal explained. 

However, the data showed that some currently undervalued towns are at risk of becoming unaffordable if interest rates rise further by 1 percent. 

The report also noted interest rate shocks are likely to be felt more in markets that are overvalued, with some towns estimated to see unaffordability rise by almost twice its current rate. 

Sydney named most ‘overvalued’ city in Australia 

Sydney was found to have the most overvalued house prices both in NSW and in the country, with the median house value sitting at $1.1 million.

The harbour city’s median house value exceeded the average household income by 26.9 per cent, according to the research. 

If interest rates were to climb to 4.5 per cent, the gap between housing affordability and the ratio of household income spent on housing would be severely slanted against investors and home owners at 35.3 per cent. 

Overvalued NSW coastal towns revealed 

Richmond Valley - Coastal

Richmond Valley - Coastal – which covers the towns of Ballina, Brunswick Heads, Byron Bay, Bangalow, and other surrounding areas – were found to be overvalued by 41.6 per cent at a 3.5 per cent interest rate, according to the latest November 2021 data. 

If interest rates were to rise to 4.5 per cent, the area’s median values would be overvalued by 48.2 per cent.  

Mr Paliwal attributes the surge in home values in Byron Bay and its surrounding region to its reputation as 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,” he said. 

However, given the area’s 144 per cent property value gains in the last 10 years, Mr Paliwal cautioned buyers to be mindful of the growth cycle potentially slowing down. 

Wollongong

Wollongong property values have exploded by 132 per cent over the last 10 years, with a median house price of $1.1 million, according to InvestorKit.

The staggering surge in dwelling prices has led to it exceeding local affordability by 28.3 per cent. At a 4.5 per cent interest rate, the figures are estimated to rise to 36.5 per cent. 

“On the sales market, monthly sale volumes are soaking up the number of listings, indicating a supply crisis. We expect higher price growth due to this,” Mr Paliwal said.

“Whilst the market is overvalued, coastal market value analysis remains difficult due to the large drive-by incomes not local to the market.” 

Coffs Harbour

Over the past decade, Coffs Harbour’s house prices have risen by 100 per cent. Its current median house price of $710,000 surpassed the affordability level by 11.1 per cent. 

This overvaluation would rise to 21.3 per cent at a 4.5 per cent home loan interest rate, the report calculated. 

Weighing in on the data, Mr Paliwal said: “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.

“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.”

Shoalhaven

Following a 10-year price gain of 119 per cent, Shoalhaven’s median house price ($730,000) is higher than the local affordability threshold, InvestorKit said. 

For properties in the area to be affordable, InvestorKit stated prices would need to fall by 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. 

Arjun stated that Shoalhaven’s appeal comes from the area’s relative affordability compared to Sydney, as well as its lifestyle perks. 

“Market pressure in Shoalhaven is much higher than a year ago, which could be attributed to city-goers moving to the coastal towns 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,” he said. 

Kiama-Shellharbour

Kiama-Shellharbour’s median house price ($815,000) comes after a 99 per cent 10-year price growth, which has led to dwelling values being overvalued by 10.5 per cent.

If the interest rate increases by 1 per cent, property prices in the area would be overvalued by almost double at 20.7 per cent. 

‘Undervalued’ towns in NSW at risk of being becoming unaffordable

Newcastle

Property prices in Newcastle have grown 89 per cent over the past 10 years, with the median house price of $775,000. 

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, should the interest rate rise 1 per cent, house prices would become unaffordable and would be overvalued by 9.4 per cent.  

Port Macquarie

Port Macquarie’s median house price ($639,000) is lower than the affordability threshold by 0.4 per cent, InvestorKit’s research showed. 

In a 4.5 per cent mortgage rate scenario, Port Macquarie would be overvalued by 11.8 per cent.

The report noted that the town’s house price and affordability might be influenced by the same factors as other coastal hotspots: retirees and capital city money inflow. 

Additionally, it highlighted that the 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. 

Given these conditions, Mr Paliwal forecast: “Coastal markets like Port Macquarie and Coffs Harbour, may likely finish 2022 as NSW top performers.” 

Wagga Wagga house prices ‘most undervalued’ in NSW

With a median house price of $415,000, Wagga Wagga house prices are 69.4 per cent lower than the affordability threshold. At a 4.5 per cent interest rate, the town would still be undervalued by 50 per cent. 

Over the past 10 years, property prices in the area have risen by 53 per cent, with the report highlighting that there is “potential for further growth”.

Other towns to remain undervalued despite a potential hike in mortgage rates

Lower Hunter

Lower Hunter is also undervalued by 54.1 per cent, with the median house price currently at $481,000.

Under a 4.5 per cent interest rate condition, property prices in the area would still be undervalued at 36.5 per cent.

“Sales market pressure of Lower Hunter is higher than last year and at healthy levels,” Mr Paliwal said.

The expert noted the tightening market conditions in Lower Hunter. “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,” he said. 

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 increases by 1 per cent.