New research from buyer's agency InvestorKit revealed that NSW's most populated coastal towns - Byron Bay, Coffs Harbour, Wollongong, Shoalhaven, and Port Macquarie - are 'overvalued', while regional towns such as Wagga Wagga and Lower Hunter are deemed 'significantly undervalued'.
InvestorKit's research determined whether a suburb was unaffordable or affordable by looking at home loan serviceability and market pressure analysis.
An 'affordable house price' was based on the average local income of a dual-income household and loan affordability of 30% net income, among other factors.
Interest rates were also factored into home loan affordability, and how a one percentage point increase in the home loan rate - from 3.5% to 4.5% - would affect a homeowner's ability to pay off the mortgage.
Arjun Paliwal, Founder and Head of Research at InvestorKit, said the 'great migration' saw Sydneysiders relocate to coastal and regional towns for a more attractive lifestyle.
"With coastal areas experiencing price growth upwards of at least 75% over the last decade, it has led to strong unaffordability in these local markets," Mr Paliwal said.
"However, it’s good news for those in search of a tree change with the regional areas of Albury-Wodonga, Wagga Wagga and the Lower Hunter found to be undervalued markets."
Sydney
With the median house price now $1.118 million in Sydney, the local property market is overvalued by 26.9% - meaning house prices are 26.9% higher than the average household income - according to the research.
If interest rates were to rise to 4.5%, the market would exceed the affordable level by 35.3%.
Wollongong
Wollongong property prices have exploded by 132% over the past 10 years, with a median house price of $1.1 million. It has exceeded local affordability by 28.3%, which would rise to 36.5% at a 4.5% interest rate.
"On the sales market, monthly sale volumes are soaking up the number of listings, indicating a supply crisis. We expect higher price growth due to this," Mr Paliwal said.
"Whilst the market is overvalued, coastal market value analysis remains difficult due to the large drive by incomes not local to the market."
Coffs Harbour
Coffs Harbour's house prices have risen by 100% over the past decade, with a median house price of $710,000 making it unafforable by 11.1%.
This overvalue would rise to 21.3% at a 4.5% home loan interest rate.
"As one of the main cities on the popular north coast of NSW, Coffs Harbour's house price and affordability may be influenced by buyers from major cities and the varying coastal market demographics," Mr Paliwal said.
"Market pressure in the area is also much higher than a year ago. Even with its valuation to local incomes, due to the influence from incomes elsewhere, price growth is expected ahead in 2022."
Northern Rivers
Richmond Valley - Coastal - which includes the towns of Ballina, Brunswick Heads, Byron Bay, Bangalow, and more - are overvalued by 41.6% at a 3.5% interest rate, and 48.2% at a 4.5% interest rate.
This is with the median house price of the area sitting at $1.12 million.
"Byron Bay and the surrounding region has always been a popular holiday destination," Mr Paliwal said.
"The local house price and affordability are skewed by investors from outside the region but also the local luxury property market.
"Buyers also need to be mindful of the growth cycle, given it experienced 144% growth in 10 years - indicating price growth potentially slowing ahead."
Newcastle
Newcastle house prices have grown 89% over the past decade, with the median house price at $775,000.
House prices are 2.3% lower than the average local household affordability level, but would become unaffordable by 9.4% if mortgage interest rates rose to 4.5%.
Wagga Wagga house prices 'most undervalued' in NSW
With a median house price of $415,000, Wagga Wagga house prices are 69.4% lower than the affordability threshold, or 50% at a 4.5% interest rate.
Over the past 10 years, property prices have risen by 53% and there is still "potential for further growth".
Lower Huntler is also undervalued by 54.1% (36.5% at a 4.5% interest rate), with the median house price currently at $481,000.
"Sales market pressure of Lower Hunter is higher than last year and at healthy levels," Mr Paliwal said.
"Listings are continuing to decline, and sales volumes are rising albeit at a slower pace than previous quarters. The local market is well balanced with high affordability, healthy yields, and high market pressure."
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