The Victorian sea-change towns where house prices fell most

House prices are falling in regional Victorian towns that earlier soared when Melburnians fled city lockdowns, as many potential buyers rethink plans for a sea change or tree change.

Rising interest rates, higher taxes on owning a second home and the rising cost of living have all contributed to prices taking a backwards step in some of the most popular towns, experts say.

Across regional Victoria, a new house price trough was reached in December last year, at a $575,000 median, Domain’s House Price Report for the December quarter showed.

The previous peak was in March 2022 at $595,000, making it a fall of 3.4 per cent from peak to trough.

At local government area level, the biggest fall in house prices was in the Shire of Indigo, down 16.4 per cent over 2023 to a $501,000 median.

The Surf Coast recorded a 10.2 per cent fall to $1.3 million, while house prices in Benalla (minus 9.9 per cent), Warrnambool (minus 6.8 per cent) and Murrindindi (minus 6.4 per cent) also fell.

Regional cities Ballarat and Greater Bendigo, which once welcomed an influx of buyers, recorded house price falls of 5.3 per cent each. Both also recorded a $540,000 median.

Domain’s chief of research and economics, Dr Nicola Powell, said the fall in prices showed that the rush to a sea or tree change was over last year as buyers started to rethink where they would live.

It was a similar case for the regional rental market.

“The flight to the regional areas is at an end,” Powell said. “People moved there because they could work remotely, but now we’re seeing a new era where businesses are wanting people to spend two to three days in the office, so people are moving closer to the city.

House prices along the Surf Coast fell by 10.2 per cent over 2023.Credit: Jason South

“Conditions are now weaker in regional areas compared to Melbourne – most areas are declining,” Powell said. “The areas where house prices are rising are further away from the city and offer cheaper houses – that’s where the demand is.”

Swan Hill’s house prices bucked the trend, rising 16.2 per cent in 2023, while Campaspe jumped 10 per cent and prices in Alpine Shire were up 4.8 per cent.

KPMG’s director of planning and infrastructure economics, Terry Rawnsley, said regional Victoria was now in a boom/bust cycle – especially in sought-after lifestyle locations.

“I think there’s a few things happening in regional areas like the Surf Coast. Obviously, there was a big rush of people there during the COVID lockdowns and there was a fixed supply, so that drove prices up,” Rawnsley said. “Since then, people have put properties on the market seeing prices come back.”

Though people are moving back to Melbourne, Rawnsley did not think a flood of people would return to the city. Many of those who left the city to work remotely would stay put, he said.

Rawnsley expected moves to regional Victoria to return to a normal rhythm this year, as younger people moved for study or work, and those aged 35 and older returned to their home towns with a family in tow.

“All of the housing markets will come back to the fundamentals and that is, what is the local economy doing for the property market?”

People buying second homes, or holiday homes, were mostly moving to the Surf Coast in 2023.Credit: Mark Chew/Visit Victoria

Great Ocean Road Real Estate director Ian Stewart said there were a number of reasons Surf Coast prices had been affected, including the rise in interest rates.

When borders reopened after COVID lockdowns ended, demand from buyers who could again travel interstate and overseas was reduced.

“Three years ago there was exponential growth during COVID and then site values and rate notices went sky-high and that flowed through to land tax [for second homes] and talk of the Airbnb tax,” Stewart, who is based in Lorne, said.

Most home buyers were looking for a holiday home along the Surf Coast, and the extra charges meant potential buyers were now thinking about purchasing rather than acting.

Most buyers in 2023, Stewart said, were people wanting a lifestyle property. This year, listings are strong, but he believed the market in the first half of 2024 would be the quietest it has been in at least 10 years.

Indigo Real Estate’s Jamie Horne said he was surprised by the price fall across the shire, but said the buyer pool for the area, which includes Beechworth and Yackandandah, had decreased.

“Because prices in our region have gone up so much … the buyer pool has shrunk,” Horne said. “Most properties are now $800,000 to $1 million plus [in Beechworth] – there is still demand – but they need to be a good home.”