A typical income equals mortgage stress as property prices rebound

First-home buyers are being squeezed by rising rates faster than property prices can fall, new data shows.

First-home buyers are being squeezed by rising rates faster than property prices can fall, new data shows. Photo: TND

Australians earning typical incomes are unable to afford houses in capital cities without immediately being thrown into mortgage stress, according to a new analysis of rebounding property prices and rate hikes.

Canstar figures published on Monday reveal a $71,000 gap between average incomes and what’s needed to repay a mortgage comfortably after median house prices rose to $851,000 in March.

The 0.6 per cent rise in prices during March was the first in 11 months, in what analysts are saying is a sign the property market is rebounding.

Aspiring home buyers will be the big losers, Canstar money expert Effie Zahos predicts, saying most face mortgage stress “right out of the gate” as recovering prices combine with rising rates to squeeze borrowers.

“It’s unusual for property prices to increase as interest rates are rising,” she said on Monday.

“One would expect that interest rates would need to be cut for property values to rise again, but a number of factors such as low supply and surging migration may be propping up prices.”

Typical home buyers left out

Mortgage stress – defined as needing to use more than 30 per cent of an income on repayments – has been on the rise across Australia as the fastest Reserve Bank of Australia rate hikes on record have pressured family budgets.

Such was the magnitude of the rate hikes that almost a year of falling property prices in 2022 failed to improve affordability because it was so much harder for new borrowers to secure home loans.

And now that property prices have started rising again, with no signs the RBA is finished with its rate hikes, first-home buyers are even worse off.

Hopefuls in Sydney face the toughest conditions, with median housing prices settling at $1.23 million in March – implying almost $6000 in monthly repayments for anyone able to afford a $246,000 deposit.

A before-tax income of $239,000 is needed to repay such a loan without financial stress, Canstar revealed, which is $145,000 above the average.

Property prices rebound

The rebound in property prices during March surprised many analysts who expected the market would take some time to recover from interest rate hikes.

But CoreLogic research director Tim Lawless said low supply and a bump in migration following COVID-19 were combining to push prices in major capitals higher, offsetting the impact of tighter monetary policy.

“Although interest rates are high and there is an expectation the economy will slow through the year, it’s clear other factors are now placing upwards pressure on home prices,” Mr Lawless said on Monday.

“Advertised supply has been below average since September last year, with capital city listing numbers ending March almost 20 per cent below the previous five-year average.

“Purchasing activity has also fallen but not as much as available supply; capital city sales activity was estimated to be roughly 7 per cent below the previous five-year average through the March quarter.”

Housing shortages to worsen

Making matters worse, the pressure on Australia’s housing system will increase over the next decade, with official forecasts on Monday predicting a large shortfall amid plunging construction activity.

The National Housing Finance and Investment Corporation (NHFIC)’s annual State of the Nation housing report for 2022-23 predicts fewer than 150,000 new homes will begin construction each year over the next two years.

That’s despite about 180,000 new households forming a year, it said.

Over a decade that mismatch is predicted to worsen and produce a shortage of almost 80,000 new homes a year.

“The much earlier increase in interest rates (relative to previous RBA guidance) is adversely impacting supply,” NHFIC said.

“NHFIC expects around 148,500 new dwellings (net of demolitions) to be delivered in 2022-23, before net new construction falls to 127,500 in 2024-25.

“A recovery in supply is expected after 2025-26 on the back of changing macro-economic conditions and stronger underlying demand.”

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