Mine Bust Halves Australia Outback Home Prices as Jobs Fade

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In Blackwater, a town of 5,000 amid the high-plains country of Australia’s Queensland state, the shockwaves from China’s slowdown are good business for Gerard Eising.

The sales consultant with Blackwater Real Estate moved to the region seven months ago to take advantage of local home prices more than halving in two years. With slumping demand from Chinese steel mills causing BHP Billiton Ltd. to cut jobs at its Blackwater coal mine south of the town, investors who paid as much as A$620,000 ($479,000) for houses three years ago are cutting their losses and dumping them back on the market.

“In a growing market there’s opportunities and in a declining market there’s opportunities,” Eising said, with tenants previously priced out of ownership now re-appearing as buyers of properties advertised for as little as A$18,000. “A lot of the sales are under pressure and mortgage payments are the biggest reason.”

Australia is experiencing a two-speed housing market: while prices in Sydney have surged to records, the end of the mining boom is depressing home values in commodity-rich regions where prices once rivaled those in New York and London.

The price declines in mining towns emphasize the dilemma for Reserve Bank of Australia Governor Glenn Stevens, who’s trying to soften the impact of waning resources spending by cutting interest rates to a record-low 2.25 percent without stoking unsustainable asset bubbles.

Housing Imbalances

Mining investment fell by 13 percent in 2014 and will probably drop further this year amid recent declines in commodity prices, the Reserve Bank said in minutes of its April 7 meeting released Tuesday. Current low interest rates “could foster imbalances in the housing market,” it said.

Home prices in Australia’s largest city of Sydney increased 14 percent from a year earlier in March, according to data from Corelogic-RP Data. In Brisbane, the capital of Queensland, they increased 3 percent.

In Blackwater, houses sold for a median price of A$450,000 in 2012, according to RP Data Pty and realestate.com.au. That hit A$193,000 last year, a 57 percent drop, the data show.

About 200 houses in the town were listed for sale over the last 12 months, and just 12 sold, according to an April 16 report from Propell National Valuers, a real estate consultant.

“We had a massive boom in 2011 and 2012, with investors from all over Australia going to seminars and shown fairly rosy projections for prices,” said Clinton Adams, founder of C.D. Adams Real Estate in Emerald, the nearest town to Blackwater an hour’s drive to the west. “For a period of time that all came true, but when the prices fall and they’re needing to put money in, they say ‘Let’s just take a hit and get rid of it.’”

Property Overhang

Blackwater had the biggest property overhang among 21 mining towns across Australia surveyed by Propell. Unsold properties in the town would take more than 16 years to clear at last year’s sales rate, according to the consultants.

At Port Hedland, the Western Australian harbor that’s the world’s biggest iron ore export terminal, the backlog would take 33 months to clear, with just 28 sales over the past year. Home prices in Port Hedland tumbled 23 percent between 2012 and 2014, according to RP Data.

Blackwater is suffering the fallout of Beijing’s shift from heavy industry and construction toward household consumption, which caused first-quarter economic growth in China to slow to its weakest pace since 2009.

The floorspace of new homes under construction in China dropped to a 6.8 percent growth rate in March, the slowest in almost a decade. That’s hurt the price of building materials, such as steel rebar which hit a decade low of 2,472 renminbi a metric ton March 10, according to data compiled by Bloomberg.

Ripples Spread

The ripples of that change have spread 7,800 kilometers (4,800 miles) south of Beijing, to Blackwater.

The benchmark price of steelmaking coal from Wesfarmers Ltd.’s Curragh mine north of the town will be $111 a metric ton in the first quarter, the company said Jan. 23 -- less than half the $230 a ton it earned in the same period of 2012.

BHP’s coal mining venture with Mitsubishi Corp. said Sept. 23 that it would cut about 700 jobs from its Queensland mines, including the Blackwater pit.

“The community feel got really badly thwarted” by job cuts, Karen Norris, manager of Blackwater Gifts & Flowers, said by phone. “When the coal prices came down you had a lot of redundancies that took out whole families. The soccer coach, the kindergarten teacher, all the people you need for the community.”

Next Boom

Those who are holding on for a recovery in coal prices aren’t making good returns. A four-bedroom house at 31 Conachan St., a five-minute walk from the town’s sports center on its northern fringe, sold for A$450,000 in March 2012 -- about 53 times the A$8,568 the property last changed hands for in 1996, according to data provided by onthehouse.com.au.

It was advertised for rent in February for A$300 a week, equivalent to a 3.5 percent yield, the data show. A comparable four-bedroom house across the street sold April 8 this year for A$160,000.

Typically, mining towns wait out their periodic busts for the next boom to come around, said Norris. This time round, she’s not so sure.

“China has said they’re going to phase out coal power plants and go with solar, and I guess that would affect some of the mines,” she said. “We’re hoping there’ll be a recovery, but we can’t really do more than hope. There’s no guarantees any more.”