A rate cut could come this month - how might the Illawarra property market respond?

Regional property markets are experiencing a “second wind” but it’s no thanks to the Illawarra, experts say.

The latest CoreLogic Home Value Index reported slowing value growths in regional housing markets, but the aggregate “combined regionals” index shows a stronger monthly growth trend relative to the capitals leading into 2025.

“Regional markets seem to be benefitting from a second wind of internal migration, along with an affordability advantage in some markets and what looks to be some permanency in hybrid working arrangements across some occupations and industries,” CoreLogic Executive, Research Director, Asia-Pacific Tim Lawless said.

However, it’s a different picture in the state of NSW and, specifically, markets like the Illawarra, according to CoreLogic head of research Eliza Owen.

“Broadly for regional NSW we’ve seen a slowdown in growth and it is driven by some of the pricier markets, which includes the Illawarra,” she said.

While the region’s value has held steady over January, it’s still down 1.3 per cent compared to the most recent high in September 2024, bringing the median value for all dwellings down from $988,500 to 975,300.

“It’s possible the combined restraints of high interest rates, cost-of-living pressure and affordability pressure have led to that slight slowdown,” Ms Owens said.

There is a substantial difference in performances between individual suburbs, however.

In Gerringong house values went up 3 per cent over the past three months – the strongest growth in the region, followed by Unanderra where house values rose 2.7 per cent.

At the other of the spectrum, Mangerton house values have dipped 5.2 per cent over the past three months.

Ms Owen said it possibly reflected a market correction.

“We’ve seen stronger corrections in home values where we perhaps saw a bit of an overshoot during COVID,” she said.

Zoom out four or five years, however, and it’s a rosier picture for the Illawarra’s homeowners, with values still up overall more than 40 per cent since March 2020 when the region’s average was in the high 600,000s.

Ms Owen said the recent sluggishness was likely part of normal market cycles, and while the region would continue to see more temperate ups and downs, the high median prices resulting from major growth during the pandemic had become “normalised”.

“The record high for the market was reached in May 2022 just as interest rates started to move higher. Interest rates are expected to come down as soon as February this year, but it’s uncertain whether the Illawarra can get back to that COVID high, when mortgage rates were as low as sub 2 per cent,” she said.

“The current environment is challenging for growth, because while there are expectations that the cash rate could come down as much as one percentage point in 2025, that would only take the average mortgage rate down to 5.3 per cent, which is still much higher than pre-COVID.

“The Illawarra market is at a much higher point than early 2020 and has become normalised at that higher level. I think we’ll now see these subtle ups and downs hovering around those high values.”

With a supposedly imminent first rate cut and improving consumer sentiment, Mr Lawless said the country could see some renewed support for housing prices over the coming months – albeit, nothing too dramatic.

“Lower mortgage rates and a subsequent lift in borrowing capacity as well as an undersupply of newly built housing could be setting the foundations for a relatively shallow housing downturn,” Mr Lawless said.

“But the easing cycle for interest rates is likely to be a gradual one, and we also have the ongoing headwinds of affordability constraints, normalising population growth and generally soft economic conditions to contend with.

“All things considered, the likelihood of a significant growth cycle over the coming year remains low.”