Homes in a range of popular Australian suburbs may be undervalued despite their high prices – offering buyers a better chance of getting their money’s worth and potentially making quick equity gains soon after purchase.
Exclusive research from real estate analytics group SuburbData has given homebuyers a list of the country’s best properties. The most underrated and underrated suburbs Poised for future price growth.
The list included the 20 least valuable suburbs for home buyers in Sydney And Adelaide, Brisbane And Melbourne.
SuburbData also compiled a ranking of the 20 Most Valuable Suburbs In each of the capitals themselves.
Many of the markets deemed undervalued were suburbs that were popular during the onset of the Covid pandemic, but have been largely dormant in the years since.
Slower growth compared to nearby suburbs with similar housing means that property seekers can often find homes at much lower prices than those in surrounding areas and have a similar lifestyle.
SuburbData considers the area to be undervalued if this long-term stagnation in price growth is coupled with a recent increase in buyer demand and a decrease in local property supply.
Another key feature of the undervalued suburbs was that the gap between house and unit prices was smaller than the historical trend, meaning that homes are now better value than they were in the past.
more: Troubled OnlyFans Star’s $12 Million Mansion Is Up For Sale
“Less valuable” suburbs would see imminent price increases because homes were better valued than surrounding areas and “needed to offset growth,” said suburb data analyst Jeremy Shepherd.
“You can buy with much more confidence in an undervalued market, because once buyers realize this better value, demand goes up and prices go up,” he said.
The key to understanding undervalued and overvalued areas is that every market moves in different cycles, Mr. Shepherd said.
“You have to look at what each market has done historically and how it compares to neighboring regions,” he said.
“Price growth does not happen gradually or steadily. There is usually an area that is better value than other options. Demand increases and prices rise.
“Ultimately, that area may not be attractive to buyers… and that usually follows a period where prices fall or stabilize until the suburb becomes good value again a few years later. It’s a cycle.”
This comes as figures released by the online property transfer platform PEXA indicate that The tree-changing phenomenon that dominated real estate markets during the Covid period has been reflected in the past year..
A group of fringe suburbs that were popular during the pandemic have recorded significant declines in transactions, PEXA reports show.
The types of markets that are considered undervalued or overvalued vary in each capital city.
Sydney
Most underrated: Karela
Most Valuable: Pollapura
Discover the 20 most underrated and overrated suburbs in Sydney
Mr Shepherd said many of the areas in Sydney that were overvalued were outer suburbs that attracted buyers when interest rates first rose in 2022.
Part of the appeal to many buyers who flocked to these suburbs at the time was that they could get better value, but that appeal has waned as prices in these areas have grown rapidly.
These areas have also seen a sudden increase in housing supply, while demand from buyers has declined, suggesting that current prices may not be sustainable.
Suburbs that showed strong signs of undervaluation were concentrated in the North, South, most of the North West and Inner West.
“Ironically, the more expensive markets are undervalued, perhaps due to some compensatory growth because they haven’t seen much growth for a while,” he added.
“People can’t keep buying in the suburbs of bridesmaids forever, eventually those bridesmaids can start to look expensive compared to some of the surrounding options and buyers look elsewhere.
“And that’s what we might see in some of those overvalued areas.”
Melbourne
Most underrated suburb: Elsternwick
Most Valuable Suburb: Aman Beach
Discover the top 20 underrated or overrated suburbs in Melbourne
Mr Shepherd said Melbourne’s undervalued markets tended to have less housing supply than demand.
“The supply in Melbourne is likely to be more influential than other markets because the supply is larger than in other capital cities,” he said.
Melbourne as a whole may have more room to grow. Shepherd said this was because global financial markets had become more stable than other capitals because a large part of the market had been dormant for longer.
“In six months we may be talking a lot about Melbourne prices. It’s not a market on the verge of collapse but the market cycle is better than other major capitals. The opportunities for good buying are increasing,” he said.
Melbourne’s property market is in better shape than many people – especially investors – thought, Shepherd said.
“There has been a lot of negative press coverage about how the new regulations will affect landlords, but despite all that the market is still dominated by homebuyers and there is strong demand from them in many isolated areas.”
Adelaide
Most Underrated Suburb: Forestville
Most Valuable Suburb: Mount Barker
See the top 20 underrated or overrated suburbs in Adelaides
Mr Shepherd said it was surprising to see many of Adelaide’s suburbs remain undervalued despite the city’s impressive property price growth in recent years.
“It’s strange for a market that has seen such a rally that Adelaide has had to hold onto high grades of undervalued areas, but I think that just speaks to the longevity of the cycle that it is in.
“Adelaide is probably not finished on its upward journey yet, because despite the high cost of living, it is still cheap compared to the other big five capitals.
“Many of the undervalued markets are more expensive than the Adelaide benchmark but there could still be more growth.”
Brisbane
Most underrated suburb: Nonda
Most Valuable Suburb: Fig Tree Pocket
See the top 20 underrated or overrated suburbs in Adelaide
Shepherd said Brisbane’s undervalued suburbs were often more expensive markets than the city average.
He said the Queensland capital did not offer the rich range of suburbs with the potential for immediate price increases that it had a few years ago.
“There are isolated markets in Brisbane that are still doing very well but overall we are not optimistic about Brisbane.
“There are certainly good markets, but there are not clusters and clusters of good markets like we saw even 18 months ago.
“You can compare it to a place like Townsville, which was a very hot market, and the whole city is booming. Supply is low and demand is high in almost all areas.”
The Risks of Buying in an Overvalued Suburb
Overvalued Outer Suburbs These markets were often the ones that attracted buyers after the Federal Reserve began raising interest rates 26 months ago. “That affordability trend” has started to ease as prices in these areas have risen, Shepherd said.
“This trend is stronger in some areas than in others, but it is not present everywhere,” he added.
Shepherd said home buyers considering buying a home in an “overvalued” suburb need to be careful.
“If you buy into an overvalued market, there’s a very good chance that prices will peak, and you can expect little growth in home values after you buy,” he said.
“In extreme cases, you could fall into negative equity as prices adjust because overvalued markets may decline over time. This would be devastating if you were forced to sell.
“Buying in a market that has peaked is a big risk. You have to hold the property longer, and you will have more problems if you have to get rid of it due to an unexpected event.”
Housing market economist Andrew Wilson said suburbs that offered cheaper prices than neighbouring areas, often called bridesmaid suburbs, were becoming harder to find in Sydney.
“We’re out of bridesmaids, they’re all brides,” he said.
“Some areas on the margin have become very expensive and buyers can no longer borrow more money to make up the difference.
“Eventually, there comes a point where buyers can’t keep paying more and more. They will adjust. Often that means moving from one type of property to another or moving in with their parents. Prices can’t go up all the time.”
