Housing affordability reaches all-time worst levels
First-time homebuyers now face mortgage repayments that exceed half of their income, according to new modelling.
This makes housing affordability more challenging than ever before, creating significant financial pressure for potential homeowners.
The typical Australian home price has surged to eight times the median household income, setting a new record high.
Meanwhile, the deposit requirement is near its all-time peak, further complicating the path to homeownership.
Additionally, rents have reached an unprecedented level, consuming a record portion of household incomes, the latest ANZ/CoreLogic report reveals.
The ABS defines a household as experiencing housing stress if it spends more than 30 percent of its income on housing costs.
The report revealed that, as of September, it now takes 10.6 years to save for a 20 percent deposit.
Additionally, mortgage repayments on a median home consume 50.6 percent of the median household income, further stressing affordability.
While saving, households are also burdened with median rents, which now account for 33 percent of the median income.
All of these figures surpass their 20-year averages, highlighting the growing difficulty of achieving affordable housing.
Eliza Owen, CoreLogic’s head of Australian research and report author, stated that housing affordability continues to decline.
“The primary issue is that housing values are growing faster than income levels,” Owen explained.
“Over the past year, incomes rose by about 3 percent, while housing values increased by approximately 6.5 percent nationally.”
“Moreover, rent values continue to rise, and interest rates remain relatively high, presenting affordability challenges from multiple angles.”
AMP chief economist Dr. Shane Oliver stated that any improvements in affordability during recent downturns are now far behind.
He explained, “It’s pretty bleak for anyone trying to enter the property market under current conditions.”
Oliver added, “This situation isn’t surprising, as property prices briefly fell in 2022, leading to a short-term improvement.”
“However, since that time, affordability metrics have worsened, highlighting the ongoing challenges for potential homeowners.”
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Dr. Shane Oliver pointed out that with house prices increasing faster than incomes, affordability continues to worsen.
“The improvement we saw in 2022 has been completely wiped out,” he said, emphasizing the ongoing challenges.
He further explained, “This really underscores the damage that the continuous rise in property prices is causing for buyers.”
Oliver noted that the combination of a high Reserve Bank cash rate and rising prices is historically unusual.
This situation has led to both dwelling value-to-income ratios and the portion of income needed to service new loans worsening.
“When you combine high interest rates with high house prices, it results in a doubly negative impact,” Oliver said.
“It’s a unique problem because typically, you’d expect higher rates to lower prices, improving affordability for potential buyers.”
Eliza Owen stated that the deposit hurdle used to be the main concern for first-time homebuyers.
“Once you secured the mortgage, low interest rates made repayments more manageable,” she explained.
“Now, both the deposit and mortgage have become significant pain points for first-time buyers,” Owen added.
Owen stated that the median home price is well beyond the reach of the median household.
“It’s simply not realistic,” she explained. “The data shows that if a median-income household of about $101,000 puts down a 20 percent deposit on the median home, it becomes virtually impossible.”
This is especially true at current mortgage rates, making homeownership unattainable for many potential buyers.
Rising house prices, despite high interest rates and reduced borrowing capacities, are believed to be driven by wealthier buyers.
Additionally, first-time homebuyers with access to intergenerational wealth, often referred to as the ‘bank of mum and dad’, contribute to this trend.
Owen highlighted that this situation is worsening housing inequality, as homes are not accessible through incomes and savings alone.
“We can’t assume that everyone has a solution like the bank of mum and dad or relocating to cheaper areas,” she said.
She added, “It simply doesn’t work for those who lack access to intergenerational wealth and rely solely on their income.”
Owen noted that it was unlikely that cuts to the RBA cash rate would significantly improve housing affordability.
“We researched this and found that, based on ANZ’s forecast of a 75 basis point reduction, affordability would improve slightly,” she said.
“However, the issue is that reduced interest rates could put upward pressure on housing values, complicating the situation.”
