Mining homes dive: $600k homes sell for $120k-$300k

IT was not so long ago that seemingly every commentary on the Australian economy referenced it simultaneously running at two speeds.

As the folk of the country's resource-rich outback towns enjoyed the abundant rivers of cash the mining boom flooded upon them, the country's traditional economic powerhouses, Victoria and NSW, stagnated with high interest rates and the high Australian dollar.

Half a decade or so on, the economic duality continues.

Only now, it's in reverse but the pain in the regions has been much more severe than anyone could have anticipated.

"95 per cent of our sales are bank repossessions," said Bella Exposito, a real estate agency owner in the Queensland coal heartland of Moranbah.

18 Yeates Street, Moranbah sold for $135,000 in December, after being repossessed by a bank. The owners bought for $545,000 in August, 2011.
18 Yeates Street, Moranbah sold for $135,000 in December, after being repossessed by a bank. The owners bought for $545,000 in August, 2011. Supplied

House prices in the once-thriving mining town have plummeted at an eye-watering pace, taking the fortunes of many a mum and dad investor with them.

As seemingly every month, we hear housing affordability in Melbourne and Sydney has moved further from the grasp of the working and middle classes, those in the mining towns are left with mortgages that can be as much as triple the value of their homes.

Piles of red dust rendered virtually valueless.

One Moranbah house that sold for $589,000 as the boom was still climbing to its peak in September 2011, sold through mortgagee auction in November for just $118,000.

Over in the iron ore centre of Port Hedland, in Western Australia's north, it's a similar story.

A three bedroom 1960s home in the town centre, once earmarked as a development site when accommodation was in chronically short supply, sold to a first homebuyer in October for $235,000.

Just four years ago, in November, 2012, it commanded $1600 per week in rent. The following year it was listed for sale for just under $1.1 million.

Morag Lowe, principal of First National Hedland Real Estate, said no-one expected the prices of the boom to last.

But, equally, no-one expected the speed of the crash.

"A lot of people have been caught out, people very experienced in real estate were also caught out," she said.

"I think everyone in our town knew the abnormally high prices were not sustainable into the future and saw it as a windfall or bonus.

"What we didn't see was how quickly the downturn happened and the enormity of it.

"We might have expected a period of adjustment, maybe a 10 to 20 per cent drop in value but the world seemed to change overnight.

Ms Exposito echoed similar sentiments.

"We went to bed with the high of the boom and then woke up in the downturn," she said.
Both women have been forced to watch, again and again, as everyday people endure the heartbreak of declaring bankruptcy.

"We're seeing mortgagee sales and not an insignificant number," Ms Lowe said.

"It's absolutely horrendous but don't make the mistake of thinking this is just something typical of mining towns.

"I have an apartment in Perth I bought around height of demand six years ago when I was getting $680 per week rent.

"Now, it's down to $480. In fact, I'm talking to an agent today and it's on the market."

23 Flight Drive in Moranbah sold for just $118,000 in November, 2016, five years after it sold for $589,000.
23 Flight Drive in Moranbah sold for just $118,000 in November, 2016, five years after it sold for $589,000. Supplied

Likewise, Ms Exposito bought a home in the central Queensland city of Mackay for $560,000 in 2013 that has recently been valued at $300,000.

Both cities had property booms due to their proximity to mining towns and subsequent downturns in the crash.

Ms Lowe said everyone knew the construction phase, that which saw thousands more people flood to the west and mining companies paying once-in-a-lifetime wages, would end.

What they did not anticipate was that it would coincide with a dramatic plunge in Chinese demand for iron ore - an appetite that had once seemed insatiable - meaning a free fall in the resource price and mass job losses.

She said that the lessons of the West Australian market crashes are equally applicable to those on the eastern seaboard, in that, economically speaking, no-one can ever predict what is on the horizon.

Morag Lowe, principal of First National Hedland Real Estate, says the fall in prices was faster and bigger than anyone expected.
Morag Lowe, principal of First National Hedland Real Estate, says the fall in prices was faster and bigger than anyone expected.Source:Supplied

"We used to discuss it quite often, those of us who live in the town, because we ourselves all have our money invested in this town, that this was a significant windfall," she said.

"No-one expected it to go up as much as it did, it was extraordinary. Windfall was the word we used but we genuinely did not see the drop being so sudden."

The director of economic forecaster BIS Shrapnel, Robert Mellor, said east coast property owners should not be fooled into thinking they are immune from downturns in property prices, albeit any corrections there are not expected to be quite so dramatic.

Mr Mellor said rapid property price rises could not be sustained due to the cyclic nature of the economy.

This house in Sydney’s eastern suburbs sold at auction for $800,000 more than its reserve price.
This house in Sydney’s eastern suburbs sold at auction for $800,000 more than its reserve price. Supplied

Those who have paid hundreds of thousands of dollars above the value of their property in competitive markets such as Sydney would likely see a drop in the value of their homes in the next few years, he said.

"People who have bought off the plan and those who have paid clearly inflated premiums for established homes will suffer most," he said.

"Those who have bought 10 to 20 per cent more than a property was anticipated to go for, might suffer a 10 per cent loss in 12 months time."

Mr Mellor said interest rates were unlikely to rise, which would head off the threat of substantial mortgagee auctions in the major cities.

However, he said in the climate of heavy borrowing to meet escalating prices, there was one sector of mortgage holders who were particularly vulnerable to any upward movement in interest rates from their current historic lows.

"Particularly people doing interest only payments, everything for them is predicated on price growth, their investment strategy is going in for price growth," he said.

"They may even be started to be affected by a small movement in interest rates, so they could find themselves getting into trouble."

He said investors looking to sell in the next couple of years would likely lose money if they had not had their property long, he said.

"These abnormally buoyant conditions are not going to be sustained," he said.

"Perth is a good example.

"Prices there are down 10 per cent since December 2014, which just highlights you do not need rising interest rates to bring about a correction.

"All you need is too much supply coming on stream, which, in Perth's case was houses.

"A 10 per cent correction by historical standards is a fairly substantial decrease.

"Even in previous recessions, it's been rare for prices to fall more than five per cent."

Brisbane apartment investors, and to a lesser extent their counterparts in Melbourne, are particularly at risk of heavy losses, he said, due to oversupply.

He said while the Melbourne market had shown unexpected resilience, Brisbane was in a free fall that could continue into 2020.

Brisbane apartment prices are predicted to continue falling for at least three years.
Brisbane apartment prices are predicted to continue falling for at least three years. Glenn Hunt

In other markets, such as Sydney, he expected the price falls to start in late 2017 and continue into 2018.

"What you are seeing in sales activity is a market that is heavily driven by investors and that's potentially unsustainable," he said.

"The prices they are paying are over the top. A year ago I would have said the market was flattening out, and there was not a significant risk of price decline in Sydney, but if the latest data is correct, there is a risk the price correction later this year and into 2018 could be in the field of 10 per cent."

The investor market is one both Moranbah's Ms Exposito and Port Hedland's Ms Lowe know only too well.

While the risks of investing in mining towns always carried higher risks than those investing in capital cities, both say there has been a silver lining in having investors abandon their towns.

Long-term residents of the town who were either previously priced out of the market or who sold up at the peak of the boom to capitalise on the opportunity and left town, are now able to enter or re-enter the market.

The vast majority of houses sold in both towns are now made to owner-occupiers, predominantly first home buyers.

"We are selling everything we have under $200,000," Ms Exposito said.

"A lot of our younger ones are purchasing property back in Moranbah."
In Port Hedland, Ms Lowe said a feeling of optimism is returning.

"I think that it's a feeling we have hit the bottom and that some of the shoots of recovery are starting to be seen in the local economy," she said.

While the halcyon, beg-spending days of the boom are long gone, and the population of the town has almost halved, there remains plenty of mining jobs on offer as it transitions away from the construction phase and into the export phase.

And that is good news for those who call Port Hedland home.

"There is still a heck of a lot of activity in this town," she said.

"We have 22 properties under contract at the moment, the majority going to owner-occupiers.

"There's been an absolute turnaround for first home buyers and local residents.

"If you can adjust to life in these remote mining towns, you can have a very comfortable lifestyle.

"If you are in employment you are still going to be earning significantly more than you would in metropolitan areas.

"No-one would ever have wanted this, absolutely no-one, but part of the nature of these towns is they are very resilient."

News Corp Australia

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