Hotspotting

Some investors are attracted to the cheap house prices and very high rental yields in resources sector towns but recent events in two of the nation’s iconic locations demonstrate why this can be a strategy fraught with peril.

Hotspotting methodology dictates that a diverse economy is a core factor in any location we are willing to recommend – which means locations dominated by one industry sector seldom make it to our hotspots reports.

A country town solely reliant on agriculture, a coastal enclave where everything depends on tourism and mining towns are all places we shy away from, because their reliance on a single industry sector makes them vulnerable, volatile and high-risk.

This is particularly so with mining towns. Many investors have lost big money buying into booming mining towns, only to see property values collapse when the boom bubble bursts.

Moranbah in Queensland had a median house price of $750,000 at the height of its boom more than a decade ago, but later the median fell below $200,000 when circumstances changed. Prices later recovered a little but today the median house price remans less than half of those peak levels.

Houses in Port Hedland in WA typically cost over $1 million during the resources investment boom but dropped to well under half that level when the boom ended. More recently they have partly recovered but the median house price today is around $700,000 – about half a million dollars below that boom-time peak.

Those kinds of risks remain today, as demonstrated by recent events in South Australia and Queensland. 

Whyalla in SA has a boom-bust history with its property market because its fortunes rise and fall with the resources sector. Today you can buy houses in Whyalla in the $200,000s and $300,000s and get 6% or 7% rental yields.

But the recent highly-publicised problems of the UK billionaire who owns the town’s biggest employer, the steel mill, illustrates how vulnerable Whyalla is. State and federal government intervention has been necessary to try to rescue the situation, at a cost of hundreds of millions of dollars to the public purse.

In far western Queensland, the iconic outback mining town of Mount Isa provides another example of the risks. A major mining operation which employs thousands of people is closing down soon, leaving Mount Isa in a difficult position. Local political and community leaders are campaigning hard to revive the town’s prospects, but the future may be grim.

A look at the price graphs for Mount Isa locations – which resemble a mountain range rather than a smooth upward curve – demonstrates how volatile this market can be.

You can buy houses in the $200,000s and get rental yields around 8% or 9%, but capital growth prospects look rather shaky at this point.

I sometimes despair for Australians trying to make sense of real estate markets, when the standard of analysis and commentary in news media is so poor.

Knee-jerk responses to short-term data sets from economists, journalists and often from the big-name research houses create a mass of confusing, conflicting and contradictory commentary.

The commentary around price data is the worst example of this. 

For a long time, the biggest problem for consumers trying to make sense of market events has been commentators putting too much importance on short-term results. 

Real estate is a slow-moving and long-term business – and data showing one month’s change in median house prices is meaningless.

Yet what we have had recently is commentators, economists and journalists declaring a downturn in national real estate based on one or two months of lukewarm figures.

And then, with the publication of the February price data, suddenly the downturn is declared to be over and the boom is back on. Seriously?

The major research organisations have analysts who have been around long enough to know that this is nonsense. I suspect they don’t care, as long as it generates headlines.

We have to remember that their motivation is not to inform us or help us, but to generate cheap publicity.

The headline on a press release from one data house on the third of March declared: 

Housing Downturn Reverses in February!

Housing downturn? Did we have a housing downturn?

And how long had this downturn been under way, before it suddenly reversed in February?

Two months, apparently. A two-month downturn and then a miraculous recovery! You have to wonder: are they really that stupid?

And what was the figure that prompted them to declare the supposed downturn was over? A monthly rise of 0.3%! 

That’s right, folks, a 0.3% increase in the national median price is enough for alleged experts to decide that the downturn we didn’t know about is already over!

And, behind that national figure, three of the capital cities recorded zero growth in February.

It is perhaps more pertinent to look at what the figures say for the latest quarter – three months of data is more meaningful.

The key points in the quarterly figures include these:-

Perth house prices are no longer growing, providing further confirmation that the Perth boom has well and truly passed its peak

Adelaide, Darwin and Brisbane had the best growth among the capital cities – but some of the regional markets had the best quarterly growth, including Queensland, South Australia and Western Australia.

Sydney and Melbourne house prices were down about 1% over the quarter. Both showed small increases in February but it’s too soon to say whether this is a serious recovery.

In the unit markets, there was solid quarterly uplift in Brisbane, Adelaide and Perth (the unit market in Perth is doing better now than the house market, as we predicted) – and those three key regional markets (Queensland WA and SA) continue to do well.

The key message from all this is that one month’s figures are meaningless. They do not constitute a trend that is worthy of major headlines – but that won’t stop news media from telling us that the fictional downturn is over.

Regional Queensland had a pretty good year for price growth in 2024 but I’m predicting it will have an even better one in 2025.

There’s mounting evidence that the combined weight of internal migrants moving to Queensland and investors increasingly pivoting from Western Australia to Queensland will drive significant price uplift this year.

In 2024, according to PropTrack figures, the median house price for Regional Queensland increased 10%, which was well above the national average (4%), and better than our three biggest cities, but was slightly below the level of growth achieved in Regional South Australia and Regional WA (which both increased about 13% last year).

Across the unit markets, Regional Queensland rose about 7% - which, again, was better than the national average (3%) but below the level of growth achieved in both SA and WA.

But 2025 shapes as being even better. I recently completed an analysis of the major residential property markets of the nation to determine which jurisdictions would likely have the best price uplift this year – and this ranked Regional Queensland No.1 among the regional markets across the states and territories - and better than most of the capital cities as well.

Other factors that may boost property markets in Queensland this year include a recent change of state government, with some new incentives coming into the Queensland market, as well as the recent reduction in interest rates, although this won’t have any major influence.

So, overall, we expect Regional Queensland to be among the best performers in the nation this year.

Queensland continues to receive more benefit from internal migration than any other state and territory – and increasingly is being targeted by investors.

Regional Queensland has an array of regional centres that offer affordable prices, attractive rental yields and growth local economies – boosted, in many cases, by a significant infrastructure spend. 

This is a recipe for price growth and we expect ongoing uplift in many of those regional centres – including Toowoomba, Bundaberg, Mackay, Gladstone, Rockhampton, Cairns and Townsville – as well as smaller centres including Gatton and Kingaroy.

Buyers should keep in mind, however, that many of these Queensland locations are being heavily targeted by both home buyers and investors – and they are very competitive markets, with properties selling very quickly, in some cases.

Since the start of the pandemic in 2020, many of Australia’s property markets have experienced some extraordinary price growth. Many locations, both city-based and regional, achieved unprecedented price increases with median house and unit prices soaring as demand hit new highs.

Where once a million-dollar house or unit median was unusual, that recent growth launched many locations into that club for the first time. As of January 2025, there were 1,194 suburbs or towns with a median house price or median unit price of $1 million or more – 50 more than in September 2024.

These figures show that although price growth may have eased in some locations in the past six months, the number of million-dollar markets continues to increase throughout Australia.

And there are still plenty of opportunities for investors to find markets that are set to tip over into million-dollar markets in 2025.

Twice a year, Hotspotting joins national buyers agency Propertybuyer in publishing the National Million Dollar Hotspots report.

This analysis shows the top ten markets in Australia that are “teetering” on the edge of a million-dollar median. They are the markets where price growth has been steady in recent years and demand remains strong. 

With that trajectory set to continue these markets will soon breach the million-dollar barrier. They are also strong markets for investors, where rents have been rising, yields are solid and vacancy rates are low.

There is a distinct lure to investing in a suburb with a million-dollar median and it’s not just the prestige of the price tag. The magic of buying in a million-dollar suburb is its capital growth potential.

By reaching a million-dollar median it’s already proven to be a desirable location where owner-occupiers and investors are prepared to pay top dollar to secure a piece of the action.

Locations teetering on the edge of becoming million-dollar median suburbs are generally undergoing gentrification and have significant infrastructure spending either underway or proposed, which means ongoing price growth.

There are plenty of inner-city markets throughout Australia which already have million-dollar medians, but successful investors are those who find locations where prices aren’t just rising, but the fundamentals and amenities are in place to ensure ongoing solid price growth and increasing demand for properties in the suburb.

It’s essential when considering a million-dollar location to invest in that it meets a variety of criteria, not just price point. There needs to be ongoing demand for property and significant amenities to meet community needs, such as public transport, shops, schools and recreation spaces, whether that be beaches, parks or lakes.

Infrastructure spending is also important, as is solid population growth and access to good local employment opportunities. These are factors that will keep buyers returning time and again to these suburbs and increased buyer demand is what will keep prices increasing to $1 million and beyond.

Southport on the Gold Coast is a good example of this. Within less than six months the median house price in Southport, which was a selection in our October 2024 report, has breached the $1 million median mark.

It had a median house price of around $970,000 in September 2024, which hit $1.04 million in February 2025 – that’s a rise of $70,000 in just five months. The suburb has achieved 15% median house price growth in the 12 months to January 2025 - and is an example of what can be achieved in the Million Dollar Hotspots.

Was the Federal Treasurer being serious when he suggested that investors pass on the new interest rate cut to tenants in the form of cheaper rents?

Has Jim Chalmers lost the plot completely or was he making a shallow pitch to voters on the eve of a Federal Election?

To suggest that investor owners are in a position to hand out financial benefits to tenants because of this one, very small, isolated reduction in their costs suggests that Chalmers is either divorced from reality or he’s having a cheap shot at landlords to win favour with renters and maybe a few extra votes.

I have to say that the more I see Chalmers in action the more I am convinced that he is one of Australia’s slimiest politicians.

Has the Federal Treasurer forgotten that this isolated, not-to-be-repeated-any-time-soon interest rate drop was preceded by 13 interest rates rises – and then more than a year of persistently high interest rates?

Is he unaware that, in addition to paying the massive hikes in loan costs, which still remain prohibitively high, property owners have also had higher taxes, higher council rates, higher insurance premiums and higher maintenance costs.

Properties that paid their own way (in other words, the rent covered all the costs of ownership) prior to May 2022 when the first interest rate rises happened, have long since ceased to be cashflow positive or cashflow neutral. 

Rental properties that previously paid their own way have become businesses that lose money week after week. Owners are having to put in part of their weekly wages to prop up rental properties, because the rent doesn’t come to covering it.

Many owners have sold up and left the rental property business because they could not afford to keep going – keeping in mind that most owners are mum-and-dad investors on average incomes and can’t afford to lose money week after week because of the repeated interest rate rises all that occurred while Jim Chalmers was Federal Treasurer.

And this small interest rate reduction, which is no thanks to Chalmers and his government, does not change that situation. 

Chalmer by name, but certainly not by nature.

One of the nation’s news media outlets responded to his comments by interviewing small investors who own one or two properties and have been struggling with the high costs of ownership. 

One of them said the first interest rate cut in more than four years would save him about $100 a month on an investment property and he commented. “In the grand scheme of things, it’s a small saving. Any suggestion that mum-and-dad investors should pass that on to tenants, is absolutely ridiculous.

“As investors, we’re already paying so much to hold our property. Land tax has gone through the roof if you’re in Victoria, along with skyrocketing insurance costs, council rates and compliance.

“We get a measly 0.25 of a percentage point rate cut, and we get asked to pass that to tenants. It’s simply a ridiculous suggestion, given that everyone who has a mortgage, including us landlords, have been hurt by the 13 rate rises in the past three years.”

Couldn’t agree more.

One of the most significant housing stories in the past year has slipped under the radar of news media, with very little commentary.

The latest official data from the Australian Bureau of Statistics shows that it now costs over $500,000 to build the average house in this country. That's the cost of construction of the dwelling and doesn't include the land price.

Given that the price of residential land is also escalating to record price levels, the reality is that the typical house and land package in a capital city is beyond the reach of most young buyers.

This, in simple terms, is the essence of the housing affordability problem that has created a national crisis.

Australia needs to build more homes – a lot more than the industry is currently able to build – but the obscenely high cost of building both houses and apartments is the largest single barrier to achieving it.

The latest ABS figures tell a very sad story. They show that the nation, in 2024, fell 70,000 home approvals short of the target set to fix the housing crisis – AND that home building costs have hit a grim new record high.

Latest Australian Bureau of Statistics figures show there were 170,719 homes approved in 2024, the second worst annual figure since 2012, with experts warning government efforts to address the housing crisis so far have failed to make a difference.

And affordability is getting worse, with the average cost of building a new house in Australia surpassing $500,000 for the first time in December, according to the ABS data, made worse by new requirements for sustainable builds.

Making a bad situation considerably worse is the soaring cost of home sites.

The Housing Industry Association says that surging land values are problematic for the struggling development sector, which is already battling soaring labour and materials costs.

Extreme housing block costs have also coincided with falling prices for established houses – making the significant premium on brand new homes a hard sell for builders.

Housing Industry Association figures showed the median price of land across Greater Sydney now stands at $2,000 per square metre. That means that even a tiny 300 square metre block of land costs $600,000.

Land prices are less – but still very expensive – in Melbourne, where that small block costs $320,000, and it's similar in both Perth and Brisbane.

But that 300 square metre block is below the normal block size. In Sydney the median lot price is $710,000 compared to around $400,000 in both Melbourne and Brisbane.

Add on that typical cost for building a home – and it makes a new house on land over $900,000 in Brisbane and Melbourne – and around $1.2 million in Sydney.

Housing Industry Association economist Maurice Tapang said the dramatic extra costs of buying land and building, versus buying established homes, could squash demand for new homes. Tapang said the price of land was now the biggest constraint on new housing construction in Australia's capital cities.

PropTrack economist Paul Ryan said: "It's becoming increasingly hard to make new housing equations stack up. There's lots of choice for established homes and the prices have gotten relatively more attractive compared to new homes, and that's something we've heard a lot of from developers".

The HIA-CoreLogic Residential Land Report showed that the median price of a capital city lot increased by 9.2% in the September quarter to $408,160 compared to a year earlier.

Tapang said: "Land prices have risen three times faster than the rate of growth in the ABS Consumer Price Index (CPI) and five times faster than growth in the cost of home building materials as measured by the Producer Price Index for the September quarter 2024."

At the same time, the cost of building a house now averages $537,000 nationally, according to the ABS, following the hyperinflation of construction costs since the pandemic.

Add those two figures together – the median lot price and the average cost of building a house – and you have $945,160.

And that, in one sentence, is the affordability issue. But I haven't heard a single politician in Australia, at any level, suggest a policy to deal with this ridiculously high cost for new homes.

And it begs the question: are politicians in government around Australia even aware that the cost of a new house on land is getting scarily close to $1 million?

Price data for Sydney provides a striking example of why it's so important not to generalise about property markets.

According to the big-name research sources, Sydney prices grew only a few percent overall in the past 12 months, but individual precincts within Greater Sydney have recorded price growth at boom levels.

Unfortunately for people trying to make informed real estate decisions, economists and journalists like to speak about "the Australian property market" and forecast what will happen with "Australian house prices" in the year ahead.

This is not only worthless information for Australians consumers, but it shouts very loudly that the economists and journalists making those generalisations know very little about residential real estate.

Even data on "Sydney house prices" is misleading and next to useless, because it tells us nothing about what's happening in the Northern Beaches suburbs or in the many locations within the Canterbury-Bankstown LGA or out at Blacktown or further west at Penrith.

Because some of the individual precincts within the Greater Sydney metropolitan area have booming property markets.

According to PropTrack data, Sydney's median house price grew just 2.5% in the past 12 months, but Hotspotting analysis shows that most of the suburbs in the City of Canterbury-Bankstown rose by 12-15% and some suburbs increased more than 20%.

Several of the unit markets in this LGA have also recorded double-digit growth in their median prices.

It's because this precinct is an out-performer within the Greater Sydney area that we have been featuring it as one of our main recommendations for Sydney over the past 12 months or so.

In the Bayside LGA, another market we have recommended in our Top 5 Sydney Hotspots report recently, many suburbs have recorded median price growth well above 10% in the past year – and this includes both house and unit markets.

It's worth remembering that more than half of all sales across Greater Sydney now are attached dwellings – units, townhouses, apartments. The market share of houses on land has been falling steadily over the past 12-18 months and now attached dwellings dominate.

Several of the unit markets in the Bayside LGA, including some that have median prices in the $700,000s, have recorded double-digit annual price growth in defiance of the average results for Greater Sydney.

It's true also of the Inner West LGA, which is increasingly dominated by attached dwelling sales. The median house price in most suburbs is well above $2 million, but many suburbs have median unit prices in the $800,000s and $900,000s – and some of those have recorded median price growth in the 7% to 12% range in the past year.

Again, this is well above Sydney averages – and it highlights the key message, that real estate is local in nature and that buyers should be focusing on the areas that are likely to perform city norms.

And 2025 will be no different.

The trend we have dubbed the Exodus to Affordable Lifestyle is one the key reasons we expect Regional NSW to deliver strong residential property markets in 2025.

The trend, of course, is not new – with big cities like Sydney losing population to internal migration for the past 10 years.

But the trend remains strong and has not slowed down or reversed, despite forecasts by some economists that there would be a movement of people back to the cities - with big businesses demanding that workers return to the office rather than work remotely.

The latest vacancy rate data for office space around Australia shows that the "return to the office" movement is not happening in a major way.

The Property Council of Australia, which represents the big end of town including major developers and owners of office buildings, is trying to put a positive spin on it, but the reality is that office vacancies overall are not improving in Australia as the work remotely trend continues to impact the top end office market.

The new Property Council report show than more offices were empty across the country in January than six months ago as the work from home trend continues to create headaches for Australia's big-city landlords.

Australia's office vacancy rate nudged up from 14.6% to 14.7% over the six months to January, the latest figures from the Property Council show. That's a very small rise – but the expectation was that vacancies would be falling significantly by now, as people move back to the cities and return to the CBD office buildings.

In Sydney, home to many finance, insurance and tech workers, the vacancy rate jumped from 11.6% to 12.8%, while the number of empty floors in Melbourne remained unchanged, at a historic high of 18%.

Indeed, office vacancy rates are between 9% and 18% in seven of the eight state and territory capital cities. The highest at 18% is Melbourne which is the basket case among the nation's economies and property markets of all kinds.

The Property Council called for "Active leadership" from the Victorian State Government to turn around the fortunes for Melbourne, which has Australia's second largest CBD, the Property Council says.

The AFR reported that major companies last year issued mandates for their staff to return to the office, but these figures show it's not happening in any major way – and both Melbourne and Sydney continue to have huge vacancies.

The movement of people from the biggest cities to regional areas is all about affordability and lifestyle, but enabled by technology which allows more people to work remotely – which is why office vacancies are so high.

Sydney, with a median house price around $1.2 million, has been steadily losing population and a proportion of that has been relocating to regional NSW, where the median house price is about $750,000 and plenty of regional cities and towns have houses on offer for less than $500,000.

This is a key reason why Regional NSW outperformed Sydney on price growth recently. In the past 12 months Sydney's median prices have risen 1.9% for houses and 1.1% for units, while Regional NSW has managed 3% for both houses and units – with a number of individual regional markets doing considerably better than those averages.

Many suburbs of Wollongong have increased 7-9%, and a number of Newcastle suburbs have recorded double-digit growth in their median house prices, as have some of the Albury locations and several of the suburbs of Tamworth.

A recent analysis conducted by Hotspotting ranked the eight capital cities and six state regional markets – a total of 14 major jurisdictions – from 1 to 14 based on a series of different metrics and Regional NSW ranked 6th out of 14 for price growth prospects in 2025.

At Hotspotting, we expect 2025 to be a solid year overall in Regional NSW markets – but you need to see our Top 5 Regional NSW Hotspots report to find out which locations will perform the best and out-perform market norms – this year and beyond.

Prospects for strong buyer demand in 2025 look good, with the latest data released by the Reserve Bank indicating a significant rise in loans for home buyers, investors and businesses.

This challenges earlier predictions of a slowdown by economists, who continue to be obsessed with interest rates as the big factor that determines everything in real estate – despite all the mountains of evidence to the contrary.

Loans to residential property investors are the highest for two years, while loans to home buyers are the highest in 18 months.

The official data shows that, as at the end of December, annual business credit growth had reached 8.9%, marking the highest growth rate since May 2023.

Similarly, growth in investor loans for residential property reached 5.1% in December 2024, up from 4.7% in November, achieving its highest growth rate since December 2022.

Owner-occupied mortgage lending also grew, maintaining an annual growth rate of 5.7%, the highest since April 2023.

These increases have occurred despite stubbornly high interest rates and notwithstanding the forecasts from major economists that real estate demand and prices would fall because interest rates have remained unchanged at those high levels since November 2023.

Strong demand has continued because the national population has been rising strongly, boosted by high levels of migration from overseas; because the labour market has been quite strong and wages have risen; because most people got a tax cut in the middle of last year – and overall borrowing capacity has been pretty good.

In addition to those national factors, there have been myriad local factors which have caused individual property markets to boom.

Perhaps the biggest single factor is that there is an unprecedented level of infrastructure development – over $500 billion in projects under way in the past year and more in planning – and this creates high levels of economic activity and employment, which translates into demand for real estate.

It all bodes well for a solid year in residential real estate, with further impetus likely to come from reductions in interest rates – and possibly a change in federal government, which looks increasingly likely.

But keep in mind that real estate is local in nature – and there will be out-performers in 2025, as there were last year and indeed in every year in recent memory.

Hotspotting has been forecasting, recently, changes in the pecking order of price growth among the major markets of Australia – and the latest research data confirms it.

Regional real estate and apartment markets are the out-performers in the latest figures from CoreLogic – which also show that Perth is no longer leading the nation on price growth.

For some time now, regional Australia has been showing better growth on average than capital city Australia and the latest figures to the end of January show that this, generally speaking, is still the case.

In January the average situation for the capital cities was a small decline of 0.2% in the median house price, but a 0.4% rise for the combined regions.

In the past quarter, capital cities have dropped 0.7% while the combined regions have risen 1%.

It's a similar story with apartments: the capital cities on average dropping a little but the regions delivering solid growth.

With house prices, looking across the 15 major market jurisdictions (eight capital cities and seven state and territory regional markets), 9 of the 15 have recorded increased their house prices. And, similarly, 9 of the 15 have lifted their apartment prices.

One of the key factors revealed by this new price data is the Perth growth rates are dropping sharply. After leading the nation on house price growth over the past two years, Perth is no longer at the top of the charts.

In January, the leading capital cities for house price growth were Adelaide and Darwin – and in the past three months it's been Darwin, Adelaide and Brisbane, all ahead of Perth.

The regional markets of South Australia, Queensland and Tasmania have also done better than Perth in the latest quarter.