Karratha: One of Australia's most "affordable" towns, as prices decline
Karratha, in Western Australia's Pilbara region, was pinpointed as Australia's most affordable town, according to the 11th Demographia survey.
The controversial research body noted Karratha's median property price was a supposed $440,000, on low sale volumes, which was 2.6 times higher than its median annual household income of $171,600.
In 2013, it was rated as "severely unaffordable" in Demographia with a median price of $775,000, 4.9 times the then median salary of $156,700.
The household income figure is elevated by the town's mining economy, with iron ore mining a major source of employment in the region.
However, as reported in the Australian Financial Review, employment opportunities in the area are declining as the mining industry moves from the construction phase to the operational phase.
According to a Deloitte report for the Chamber of Minerals and Energy of Western Australia, the Pilbara's labour force is expected to decline by 14,300 workers by 2020, as 17,900 construction jobs are shed and 3,600 operational workers are introduced.
The shift has repercussions in the area's property market, despite investment by local and state governments that has delivered infrastructure and improved amenity in the Pilbara, including Karratha.
Demographia's latest International Housing Affordability Survey ranked Karratha the most affordable in a list of 51 towns, using statistics from the Real Estate Institute of Western Australia among other sources, based on median property price as a multiple of median household income.
Property Observer has previously noted price declines over the past two year, with more obvious price declines evident in 2014.
Karratha's property declines are demonstrated by this Millars Well property, which CoreLogic RP Data reports as having sold for $380,000 in December 2014, after being listed with a price guide of $415,000 (pictured below).
The vendors purchased the three bedroom house for $465,000 in 2006. In 2012, while held by the vendor, it was listed to rent for $1,000 per week, representing a yield of 11.2%.
Given Karratha's large transient workforce, its rental market has been characterised by relatively high rents.
506 Hunt Way in Bulgarra sold for $585,000 in December, after just a year of ownership (pictured below). When it was purchased in late 2013, it was priced at $589,000.
The vendors who sold the home for $589,000 in 2013 purchased it for just $44,000 in 1996.
In 2012, it was advertised to rent at $1,400 per week – if successfully rented, it would have earned its owners 1.65 times their purchase price annually.
While the gains for investors may have been ludicrous in the past, as the workforce declines, so too does their income stream.
In 2013, Property Observer wrote that the region's rental market was starting to "lose some of its sparkle". By July 2014, columnist Terry Ryder was calling Karratha a market "in decline", but remaining "outrageously overpriced".
The price declines are evident at 7 Wilson Court in Pegs Creek, pictured below.
The home sold for $685,000 in April 2014. It has changed hands regularly in the last 10 years, first selling for $320,000 in 2004 before making a 173% price increase over three years to sell in December 2007 for $875,000.
It resold again in 2009 for $710,000, dropping 18.9% in a year and a half. It was then held for three years before its $685,000 April 2014 sale.
The home was advertised to rent for $1,000 per week in April 2014, representing a rental yield of 7.5%.
The town's rental market has been in a downturn in recent years, as have many mining towns in the region.
SQM Research shows the vacancy rate in Northern Western Australia tracking upwards in the past two years.
The exit of renting mine workers has also seen rents drop in the region.
Asking rents in Northern Western Australia:
As the mining economy transitions into its operational phase over the next few years, Karratha's "affordability" looks likely to continue. 19 Matebore Street, in Karratha's Nickol, is currently on the market for $610,000. Its asking price has been discounted by 22% since it was first listed 594 days ago, for $775,000.
Asking rents for the house have been similarly discounted over the past few years. In 2012, it was being advertised to rent at $1,700 per week. In 2014, that decreased to $1,100 per week. Last week, it was advertised again at $750 per week.
The owners paid $790,000 for the home in 2009. If it sells at its current asking price, they will be facing a $180,000 loss, plus stamp duty costs.
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Feature image of Karratha courtesy of Nachoman/CC BY-SA 3.0.
