Market Insights - Winter Market Shock: Defying Slowdowns in the Illawarra Property Market

The Illawarra property market experienced a complex and nuanced performance during the 2024 winter period, demonstrating both resilience and vulnerability amid broader regional market downturns. While the region initially outperformed other areas of New South Wales during the early months of 2024, it ultimately succumbed to the winter market shock that affected much of regional Australia. However, the market's fundamentals remain strong, supported by migration patterns from Sydney, relative affordability advantages, and structural demand drivers that position the region for potential recovery as national market conditions improve.

Market Performance During the 2024 Winter Period

The winter of 2024 marked a significant turning point for regional property markets across Australia, with the Illawarra region experiencing both the highs of earlier outperformance and the subsequent cooling that characterised the broader market correction. During the first quarter of 2024, the Illawarra demonstrated exceptional strength, leading regional New South Wales in quarterly growth performance. The region achieved quarterly price growth of 2.41% and annual growth of 5.83% by April 2024, establishing it as the top-performing market within regional NSW over the preceding 12 months. 

This strong performance continued the momentum that had been building since the pandemic-driven property boom, where regional markets benefited from structural shifts in work patterns and housing preferences.

Despite the winter months bringing a dramatic shift in market dynamics that aligned with broader regional trends across New South Wales and Victoria, the Illawarra's resilience was evident. The CoreLogic report revealed that regional house prices fell approximately 3 per cent during the winter period, with some cities experiencing drops as significant as 4 per cent between May and July. However, the Illawarra's ability to weather this downturn, characterised by a rapid cooling of buyer demand, increased market uncertainty, and a general reassessment of property values, is a testament to its stability in the face of challenging market conditions.

The timing and severity of this correction reflected multiple convergent factors that created perfect storm conditions for regional markets. Rising interest rates, persistent inflation concerns, and increased construction costs combined to create affordability pressures that began to outweigh the migration and lifestyle benefits that had previously driven regional market growth. The Illawarra, despite its relative strength and proximity advantages to Sydney, was not immune to these broader economic pressures that reshaped buyer behaviour and market sentiment during the winter months.

Comparative Regional Performance and Market Positioning

The Illawarra's performance during the winter market shock must be understood within the context of its position relative to other regional markets and its relationship with Sydney. Before the winter correction, the region had established itself as a standout performer within the regional NSW property landscape, demonstrating growth rates that exceeded most comparable markets. The region's 5.83 per cent annual growth rate as of April 2024 positioned it favourably against other regional centres, while its quarterly growth of 2.41 per cent represented the strongest pace of any regional NSW market during that period3. This outperformance was particularly notable given the challenging market conditions that were emerging across the broader property sector.

The region's investment appeal was further evidenced by the concentration of investment-driven income sources in key suburbs, with Kiama leading the Illawarra at 20.9 per cent of residents deriving their primary income from investments, followed by Shoalhaven at 15.9 per cent. 

This investment activity reflected both local wealth accumulation and external investor interest, contributing to price appreciation and market liquidity. The presence of significant investment activity also created a different dynamic compared to purely owner-occupier-driven markets, adding layer of demand that helped sustain market activity even as conditions began to tighten.

However, the winter shock revealed the limits of this outperformance, as evidenced by the dramatic slowdown in land value appreciation reported in December 2024. Wollongong's residential land values increased by only 1.8 per cent, a dramatic deceleration from the explosive growth of 24.6 per cent and 34.4 per cent in 2021 and 2022, respectively. 

Similarly, Shellharbour experienced a cooling to 2.5 per cent growth from previous annual increases of 29.3 per cent and 20.2 per cent, while Kiama recorded a 4.1 per cent decline after substantial gains of 37.8 per cent and 53.5 per cent in the preceding years. These figures illustrate how the winter shock affected even the strongest regional markets, creating a more normalised but challenging environment for property appreciation.

Underlying Market Dynamics and Resilience Factors

Despite the winter market shock, the Illawarra region retained several fundamental strengths that distinguished it from other regional markets and provided a foundation for potential recovery.

The region's proximity to Sydney continued to represent a significant competitive advantage, particularly as hybrid work arrangements became more permanently embedded in employment structures. Oxford Economics Australia's analysis highlighted this dynamic, noting that the expected shift toward working from home would likely be "somewhat structural," making Wollongong an attractive location, especially for first-home buyers seeking alternatives to Sydney's expensive market.

The migration patterns that had driven much of the region's growth remained structurally significant, even as the pace of internal migration began to moderate. The analysis suggested that while internal migration to the market was easing, it was expected to rebound above pre-pandemic levels, maintaining pressure in the market through sustained demand2. This ongoing migration was supported by the region's maintained affordability advantage over Sydney, where median values had climbed above $1,000,000, making the Illawarra's sub-$1,000,000 market particularly attractive for buyers seeking value and lifestyle benefits.

The region's rental market dynamics also provided underlying support during the winter period, with vacancy rates remaining below those in Sydney, indicating sustained demand for accommodation despite the broader market cooling. This rental market strength reflected both the ongoing migration patterns and the region's appeal as a destination for both permanent relocation and temporary lifestyle changes. The combination of lower vacancy rates and continued demand created a foundation of market activity that helped cushion the impact of the broader property market correction.

Interest rate expectations also played a crucial role in shaping market dynamics during and after the winter shock. The anticipated cash rate cuts, beginning in late 2024, were expected to drive an acceleration in price growth through the mid-decade period. This forward-looking perspective provided some market confidence even during the challenging winter months, as buyers and investors could anticipate improved borrowing conditions that would likely stimulate renewed demand and support price recovery.

Housing Affordability and Market Access Challenges

The winter market shock occurred against a backdrop of deteriorating housing affordability that had been building throughout the preceding growth period. The combination of rapid price appreciation and elevated interest rates created significant challenges for market participants, particularly first-time buyers who had been increasingly priced out of the market. Eleanor Creagh from REA Group noted that housing affordability had "deteriorated significantly as interest rates remain high while prices have continued to lift," creating a challenging environment for market entry3.

This deterioration in affordability was particularly problematic, given the region's traditional role as a more accessible alternative to Sydney's property market. The rapid price appreciation that occurred during 2021 and 2022 compressed the affordability advantage that made the region attractive to Sydney-based buyers. While the region remained more affordable than Sydney in absolute terms, the rate of price growth had reduced the relative benefit that previously drove migration and investment decisions.

The winter market shock, while challenging for existing property owners, paradoxically created some relief for potential buyers by moderating the pace of price growth and creating more realistic market expectations. The cooling of market conditions provided opportunities for buyers who had been unable to compete during the peak growth periods, potentially supporting a more sustainable level of market activity. However, the persistence of elevated interest rates continued to constrain borrowing capacity and limit market participation for many potential buyers.

The regional housing market's performance during this period also highlighted broader supply and demand imbalances that contributed to both the preceding boom and the subsequent correction. The analysis of rural land values in Shellharbour, which continued to climb by 20.5 per cent despite residential market cooling, reflected constrained supply conditions and the "tightly held nature of the market"4. These supply constraints suggested that while demand cooling could moderate price growth, structural supply limitations would likely support values and limit the extent of any sustained correction.

Future Market Outlook and Recovery Prospects

As the Illawarra property market navigated through the winter shock and into 2025, several indicators suggested the potential for recovery and renewed growth, albeit at more sustainable levels than the explosive gains of previous years. The Oxford Economics Australia forecast provided a roadmap for market recovery, predicting that Wollongong's median house price would reach $986,000 by December 2024 and cross the symbolic $1 million threshold by March 20252. This trajectory suggested that despite the winter cooling, the underlying growth momentum remained intact, supported by the region's fundamental advantages and improving interest rate conditions.

The national market context also provided reasons for optimism, with CoreLogic's national Home Value Index posting a 0.3 per cent rise in February 2025, breaking the brief downturn that had lasted just three months. While the Illawarra initially underperformed relative to the national rebound, experts expected the region to rally alongside its capital neighbour as market conditions normalised and improved.

This expectation was based on the region's strong fundamentals and its historical correlation with broader Sydney market trends.

The anticipated cash rate cuts represented a crucial catalyst for market recovery, with falling interest rates from late 2024 expected to drive stronger price growth through the mid-decade period2. Lower borrowing costs would likely reignite buyer demand and investor interest, particularly given the region's relative affordability compared to alternatives in Sydney. The combination of improved borrowing conditions and the region's structural advantages suggested that the winter shock represented a temporary correction rather than a fundamental shift in market dynamics.

Market experts also highlighted the ongoing appeal of the region for different buyer segments, particularly first-home buyers seeking alternatives to Sydney's expensive market. Neil Webster from Stone Real Estate Illawarra expressed confidence in continual growth in the Wollongong market, provided there were no further interest rate increases2. This perspective reflected broader industry confidence in the region's medium-term prospects despite the short-term challenges created by the winter market shock.

Conclusion

The winter market shock of 2024 represented a significant but temporary disruption to the Illawarra property market's strong performance trajectory. While the region was not immune to the broader regional market correction that affected New South Wales and Victoria, its fundamental advantages and structural demand drivers positioned it well for recovery as market conditions improved.

The dramatic cooling from the explosive growth rates of 2021-2022 created a more sustainable market environment while maintaining the region's core appeal as an affordable alternative to Sydney with strong lifestyle and employment benefits.

The market's resilience during this challenging period demonstrated the strength of underlying demand drivers, including ongoing migration patterns, hybrid work arrangements, and the region's proximity advantages.

While affordability challenges persisted, the moderation of price growth during the winter period created opportunities for renewed market participation as interest rate conditions improved. The combination of anticipated rate cuts, structural demand factors, and the region's competitive positioning suggested that the winter shock marked a correction rather than a fundamental change in market direction, setting the stage for renewed growth as broader economic conditions stabilised.