Households earning a median income can no longer afford a median-priced home across most capital cities after values rebounded stronger than expected last year and interest rates lifted further, data from CoreLogic shows.
CoreLogic research director Tim Lawless said affordability was unlikely to improve until either interest rates or home values dropped significantly.
Sydneysiders Caroline Shaw and Chris Pulo decided to forgo homeownership and instead opted to use their money to invest in property. Dominic Lorrimer
“It’s hard to see this trend turning around until either housing prices fall or interest rates come down,” he said.
“It’s looking more likely that interest rate cuts would help improve affordability this year from a mortgage serviceability perspective considering that housing prices are likely to hold relatively firm if not see some mild growth due to burgeoning undersupply.”
At the current levels, only 16 per cent of all suburbs nationwide are affordable for households buying an average-priced house on a 20 per cent deposit, a sharp decline from five years ago when 61 per cent were affordable.
At the height of the pandemic in 2021, buyers could buy an average-priced home across 46 per cent of all suburbs. However, this has shrunk to just 26 per cent in 2022, when mortgage rates rose to 5.49 per cent on average.
For units, the share of affordable suburbs has dwindled to 46 per cent from 81 per cent in 2019.
CoreLogic defines a suburb as affordable when the portion of mortgage repayment does not exceed a third of the gross household income.
In the past five years, monthly mortgage repayments on a median-priced house have climbed to $4195 from $2030 in 2019, according to RateCity’s calculation.
During the same period house prices increased from 5.8 per cent annual growth in 2019 to 8.6 per cent in 2023.
Sydney has no affordable markets for those earning a median income looking to buy a median-priced house, a rapid deterioration from five years ago, when more than a third were affordable for median-income households.
For units, the portion of affordable markets dwindled last year to just 24 per cent from 55 per cent five years ago.
Affordability has become so challenging that aspiring home owners would unlikely be able to afford a home using the traditional means of saving a deposit on their own, said demographer Mark McCrindle of McCrindle Research.
“It would take more than a decade to save the 20 per cent deposit, so homebuyers have to think of ways to fast-track that process such as accessing some capital from the bank of mum and dad,” he said.
“They could also look at group buying or moving into areas where they are not spending most of their income on rent or mortgage repayments.
“They can also consider renting for a while and invest their money in other areas.”
Sydneysiders Caroline Shaw and Chris Pulo were among those who opted to rent and use their savings to invest in property instead.
“A lot of people generally want to own their place, but we don’t really think in the same way,” Mr Pulo said.
“We won’t be able to buy a house we want in a location we like just by trying to get ahead and save for it. It’s going to take way too long.”
Ms Shaw and Mr Pulo rent an apartment in Bondi, while paying a mortgage on their investment property in Bundaberg, Queensland.
In just five months, the value of their investment property increased by about $40,000 while earning a healthy rent. They plan to use this equity to buy another investment property this year.
“We’re quite happy renting and being able to live in a prime location that we’re unlikely to afford to buy a home and invest our money in property rather than saving to buy our own home,” Ms Shaw said.
The portion of affordable house markets hase also dropped sharply in other capital cities in the past five years.
In Brisbane, the portion of suburbs where buyers can afford an average house has slumped to just 12 per cent from 73 per cent five years ago.
Affordability has also worsened rapidly in Adelaide in the past five years. The proportion of affordable house markets has tumbled to just 4 per cent from 59 per cent amid sharp house price increases during the same period.
Across Perth, 78 per cent of all suburbs were affordable five years ago, but that fell to just 21 per cent in 2023.
In Melbourne, the share of suburbs where home buyers on an average income can buy an average home plummeted to 4 per cent last year from 32 per cent in 2019. For those opting for units, the number of affordable suburbs has declined to 39 per cent from 77 per cent.
Canberra has 83 per cent affordable house markets in 2019, but this has shrunk to just 2 per cent in 2023, while Hobart dropped to just 7 per cent from 65 per cent.
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