First home buyers unable to break into the housing market in coming months may find it even more difficult to buy next year as prices continue to rise, the ANZ CoreLogic Housing Affordability report shows.
Eliza Owen, CoreLogic head of research said surging rents, increasing home values and higher interest rates all combined to inflict unprecedented housing affordability challenges for aspiring home owners.
First home buyers may struggle even more to buy next year as house prices increase further according to CoreLogic. Joe Armao
“This is one of the most challenging times for first-home buyers that we’ve seen in the data historically,” she said.
“Property prices are expected to keep rising as interest rates stay on hold, and they could increase faster once interest rates start coming down next year, which means first home buyers would need to save a bigger deposit, which would take a lot longer.”
Since bottoming out earlier this year, house prices have increased by 4.9 per cent nationwide, and by 8.8 per cent across Sydney according to CoreLogic.
This has raised the deposit hurdle across the bigger capital cities with Sydney first home buyers now taking 12.3 years to save a 20 per cent deposit for an average Sydney home, up from 11.8 years during the March quarter.
While growing size of Australia’s cohort of renters and the chronic shortage of affordably priced rental properties has shifted the politics of housing away in part from the question of first home buyer access to property ownership, the figures show this problem is also getting worse.
An increase in the number of homes on the market as rates rise will slow the pace of growth in housing prices, but not stop it.
The time it takes to save a deposit increased by one month to 9.6 years in Melbourne, it rose by three months to 9.4 in Brisbane and lengthened by more than one month to 10.2 years and 7.5 years in Adelaide and Perth respectively.
A 20 per cent deposit on the median home value in Australia currently represents 148 per cent of median household income, compared with a historic five-year average of 136 per cent, the report noted.
Taking inflation into account, real incomes fell through the June quarter, meaning there was less left over for servicing housing costs after other necessary expenditures like energy bills and groceries.
“This presents a particular challenge for many first home buyers,” Ms Owen said.
“This speaks further to the idea that the median household can’t afford an average dwelling unless they’re getting a serious windfall from mum and dad that helps them with a larger deposit.”
A calculation by comparison site Rate City shows that it would take nine years and one month to save a deposit on a $1 million property if they start saving $400 a week in a high-interest savings account earning 5 per cent interest.
“This does not factor in changes to the interest rate or any tax paid on the interest, both of which have the potential to make this timeline even longer,” said Sally Tindall, Rate City research director.
“It also doesn’t consider the fact that property prices are highly likely to have risen considerably in this time.
“As prices continue to rise, potential home owners may feel like they’re given no choice but to take out a loan they’re not comfortable repaying in order to get the home of their dreams.”
Home buyers who are able to clear the deposit hurdle and serviceability assessment must now budget a bigger portion of their income to housing costs amid higher house prices.
In Sydney, home owners need to allocate a record 57 per cent of their income to servicing a new mortgage, up from 51.6 per cent in the March quarter.
Across Adelaide, the second least affordable housing market in the country following a 44 per cent surge during the pandemic, home owners now need 47 per cent of their income to service an average home, which is a 3 percentage point increase from the previous quarter.
Nationwide, home owners now have to spend 45.5 per cent of their income to pay a mortgage on an average home, up from 42.7 per cent from the March quarter.
Ms Owen said home buyers who can get into the market now, and service high mortgage costs in the short term, may benefit from lower mortgage rates when the RBA starts cutting next year as well as from the subsequent house price gains.
“First home buyers who can get into the market now may experience property value gains as real incomes rise in 2024, and there is modest easing in the cash rate towards the end of the year and through 2025,” she said.
“This dynamic will also make it even more difficult for first home buyers who are not able to get into the market over the next year.
“If you don’t have financial support from your family, it’s increasingly likely that you miss out on ownership and that’s where we see issues of inequality exacerbated through these trends.”
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