Capital gains in greater capital cities may provide opportunities for homebuyers

Inner cities have always been property hotbeds, marking impressive spikes in price in the last few years. But the “most mortgaged markets”, according to CoreLogic, now lie in the outskirts of Australia’s capitals – and value growth may make them more attractive for home buyers.

Property listings creeping up despite cold winter selling season

The latest rate hike from the Reserve Bank of Australia may dampen home buyer spirits in time for the seasonal winter slowdown. Indeed, CoreLogic estimates roughly 350 basis points of the 400 bp increase to the official cash rate have now been passed along to home loan borrowers. 

“Using the example of a $750,000 mortgage, this takes monthly home loan repayments up by around $1,550 per month,” explains CoreLogic head of residential research, Eliza Owen.

“Additionally, the bulk of fixed-term home loans taken on during the pandemic are expiring this year, exposing more households to a spike in interest costs.”

For the most mortgaged markets in Australia – who tend to house low to middle-income families – this could be a significant cost burden to tackle. According to CoreLogic, 64% of the outer capital city regions had median household incomes lower than the capital city itself.

These regions have also seen minor upticks in sales volumes headed into winter, which is usually the coolest time for housing stock. Yet despite the increase in properties for sale and the high cost of financing a home loan, some of these regions have also shown remarkable capital gains, especially in Perth and Adelaide.

Capital growth in most mortgaged markets – CoreLogic (June 2023)

% of owner-occupied mortgaged homes
Capital gains  in the last three months
Greater Sydney
Blacktown - North
Greater Perth
Greater Adelaide
Greater Perth
Greater Perth
Greater Sydney
Greater Perth
Greater Adelaide

Why is this significant? It could have implications for overall housing stability. 

If home loans get too expensive to afford, home loan hostages or mortgage prisoners may resort to what’s called a “forced” or “distressed” sale, where they sell their property to recoup their debts. 

If capital growth in these highly mortgaged areas holds steady or outpaces the national average, sellers can pay off their mortgage and then some, even with the capital gains tax

In fact, CoreLogic reports these indebted markets had overall capital gains of 3.1% since the start of the pandemic, compared to 1.0% for the rest of the country. 

However, with more properties hitting the market in these regions, distressed sellers may have trouble recouping their losses due to oversupply in the coming months. Owen says this could smother any recent progress in home values. 

Yet these regional markets still present an opportunity for buyers and investors where budget isn’t an issue, especially for those looking for something unique and out of the way.

“[Some] markets have had extraordinary capital gains since the onset of the pandemic, and since the [2021] Census snapshot,” explains Owen. 

In a time of volatile property prices, suburbs showing promise are always eye-catching. 

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