Over the past few years, Adelaide's property market has experienced significant divergence in house price performance, with some areas seeing rapid growth while others have stagnated or even declined. However, a new trend has emerged that is perhaps even more striking: the growing gap between the price performance of Adelaide's inner suburbs and its outer suburbs. According to recent data, the gap between these two areas has widened to as much as 11.4% over the first three months of 2023. This raises the question: what is driving this trend, and what are the implications for Adelaide property investors?
Price dynamics over the first 3 months of 2023
Adelaide's worst performing suburbs in the first quarter of this year have one common feature - they are all within 5 kilometres of the CBD. In some cases, these suburbs are falling at record rates. The worst performing suburb was Millswood where prices fell 8.2 per cent, followed closely by Linden Park (-7.3 per cent).
Table 1: Worst Performing Suburbs
The outer suburbs have fared much better and, in some cases, house prices are growing faster than at any point in the past 20 years. The top performers are listed in Table 2 below - the best performing suburb is Angle Vale where prices jumped almost 4 per cent since January this year.
Table 2: Best Performing Suburbs
The factors driving the two-speed property market
One major factor driving the divergence in house prices across Adelaide's inner and outer suburbs is the uneven impact of higher interest rates. As interest rates rise, homeowners and buyers in suburbs with higher median prices are hit hardest because they typically have larger mortgages. This means they are more sensitive to changes in interest rates, as their borrowing capacity falls by much more in dollar terms when interest rates rise. In contrast, homeowners and buyers in the lower-priced outer suburbs tend to have smaller mortgages, making them less vulnerable to interest rate changes.
This difference in borrowing capacity is a key driver of the widening gap between Adelaide's inner and outer suburbs. When interest rates rise, it becomes more difficult for buyers to secure financing, and this can lead to a decline in demand for properties in higher-priced suburbs. As a result, house prices in these areas may fall, exacerbating the gap between them and the better-performing outer suburbs.
Another factor that may contribute to the uneven impact of higher interest rates is the fact that buyers in higher-priced suburbs may be more likely to be investors, rather than owner-occupiers. This means they may be more likely to sell their properties if they see a decline in the market, which can further exacerbate the gap between inner and outer suburbs.
Implications for investors
Overall, the uneven impact of higher interest rates is a significant driver of the divergence in house prices across Adelaide's inner and outer suburbs. As interest rates pause and potentially fall next year, it will be important to monitor the impact on the housing market, and to consider strategies to take full advantage of the changing market dynamics.
To explore your options and get the full list of suburbs ranked by price performance, contact us via email or phone. Alternatively, click here to book an appointment: https://www.propertyinvestmentcoaching.com.au/book-online
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