Rising rates have hit housing affordability, with the percentage of suburbs where it is cheaper to buy a house than rent one slumping to just 3.3 per cent nationally from 30 per cent before interest rates started increasing last year, new CoreLogic data shows.
The rising cost of money since May last year has pushed up mortgage repayments on a $500,000 variable-rate loan with principal and interest repayments over a 30-year term by 25.5 per cent, adding about $606 each month, according to the data provider.
This has hit the affordability of both unit and house purchases.
Only 6.5 per cent of all unit markets nationwide are now more affordable for buyers than renters – a sharp decline from 48 per cent of suburbs as of April last year. That’s a drop from 552 unit markets to 78. For house purchases the number of suburbs slumped from 818 to 91.
The number of suburbs where it’s cheaper to buy a unit has shrunk to just 78. Erin Jonasson
”Even though rents were still rising rapidly, up 9 per cent over the past 12 months, mortgage repayments have risen substantially more, which has placed further downwards pressure on the number of suburbs where it’s cheaper to buy than rent,” said CoreLogic research director Tim Lawless.
“A cut in interest rates would clearly lower mortgage repayments, but is also likely to stimulate more demand-side pressures, which could push housing prices even higher.”
The only solution was for more supply to be added to the national market, to contain prices and create more diversity of housing type, especially in price-sensitive areas, he said.
AMP head of investment strategy and chief economist Shane Oliver said interest rate cuts would improve buying affordability, but these were unlikely to occur any time soon.
“If interest rates start falling, that will improve affordability in favour of homeownership, but ultimately, it depends on how quickly interest rates come down,” he said.
“At the moment, the most likely scenario in our view is flat interest rates and then as we go through next year, they’ll start to come down. We think rate cuts might come earlier in the year, but many economists are thinking later in the year, so rate cuts could be a year away.”
Only four capital city suburbs – Kwinana Town Centre in Perth, along with Gray, Moulden and Zuccoli in Darwin – are now more affordable to buy a house than rent, down from 319 house markets 16 months ago.
Not a single house market across Sydney, Melbourne, Brisbane, Adelaide, Hobart and Canberra favours buying over renting.
With capital city unit values about 29 per cent lower than houses, a substantially larger portion of suburbs cost less to pay down a mortgage than to rent, although the number of suburbs has also reduced across the unit sector over the past year.
All unit markets in Sydney and Hobart are now more expensive to buy than rent, despite the hefty increases in asking rents in the past 12 months.
Perth has the largest number of suburbs where buying is cheaper than renting, with 29, followed by Darwin, with seven, Brisbane, with four, and Melbourne, with three.
Mortgage repayment is cheaper by up to $276 a month in Melbourne suburbs Carlton, Melbourne city and Travancore, and lower by $40 a month on average across Spring Hill, Waterford West, Woodridge and Logan in Brisbane.
Across Perth, buying is cheaper than renting in Orelia, Glendalough, Thornlie and Wembley where buyers can save between $313 and $411 each month.
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