Holiday homes in NSW on the nose

The first signs that the housing market may be softening in response to volatile economic conditions are being seen in the coastal property market.

Research by property analysts RP Data shows that growth in the value of homes in New South Wales coastal towns has slowed, with properties on the market for longer and selling for less than at this time last year.

Holiday homes, which are often highly geared investments, are sold when investors feel uncertain and want to increase their liquidity.

But the pain felt in NSW is yet to be replicated in other popular resort locations around Australia, with Portsea and Lorne in Victoria, Port Douglas in Queensland and Margaret River in Western Australia all recording comfortable growth over the last year.

In Australia’s capital cities, there’s been a big rise in the number of listings. In the last two weeks, there were 34,000 listings of properties for sale compared to just 26,000 for the same period in 2007, according to RP Data.

Queensland recorded the highest jump in new residential property listings with an increase of 38%. In Brisbane, the number of new listings over the last four weeks increased by 62% from the same period last year.

RP Data director of research Tim Lawless says there are two possible interpretations for the spike in listings.

“It can be a case where market sentiment remains high and vendors are confident in market conditions, or conversely, vendors are pushing more properties into the market now for fear of conditions deteriorating later in the year.

“In all likelihood, the latter may be true where we are now seeing home owners becoming afraid of future changes in market conditions fuelled by rumblings amongst industry experts that the Reserve Bank is likely to continue to increase interest rates.”

The gap between more affluent inner suburbs and the outer urban “mortgage belt” continues to grow. This trend is most apparent in Sydney, where the inner suburbs have recorded value growth mostly above 10% a year while urban fringe suburbs remain very flat. This pattern is now being seen in Melbourne and Perth.

“The factors behind this trend are simply that borrowing capacity has not been reached within the inner ring suburbs, while the mortgage belt areas are suffering from low demand due to affordability constraints,” says Lawless.

“The white knight for these outer regions may be the return of investors during 2008. With rental yields in many of these areas now above 6%, these outer markets are starting to look very attractive to the investment market.”