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Falling house prices offer buyers brief respite, but affordability remains stretched
Housing affordability has improved as property prices decline, but higher mortgage rates and borrowing costs continue to put home ownership beyond the reach of many Australians.
- Housing affordability improved 3.6 per cent in the September quarter, according to new HIA figures.
- Despite the improvement, affordability remains 5.4 per cent worse than a year ago.
- Households still need 1.8 average incomes to comfortably service a mortgage on a median-priced home.
Falling house prices have delivered some relief to Australian homebuyers, but new research shows housing affordability remains close to its worst level on record.
The Housing Industry Association’s (HIA) latest Affordability Report, released on Wednesday, found affordability improved 3.6 per cent in the September quarter as declining property prices helped offset higher mortgage costs.
However, affordability remains 5.4 per cent worse than a year earlier, leaving prospective buyers facing significant financial barriers despite the property market downturn, HIA found.
HIA senior economist Tom Devitt said the improvement was welcome but unlikely to last.
“Falling dwelling prices have provided Australian homebuyers with a rare improvement in housing affordability, but the relief is unlikely to last,” Devitt said.
The figures come as Australia’s housing market continues to weaken under pressure from higher interest rates, changes to capital gains, and negative gearing for older dwellings.
From July 2027, the government will restrict negative gearing to newly built homes and replace the 50 per cent capital gains tax discount with an inflation-adjusted system and a minimum 30 per cent tax rate on gains.
Property research firm Cotality reported that national dwelling values fell 1.1 per cent in September, the sixth consecutive monthly decline, leaving prices 5.2 per cent below their March peak.
It’s worth noting that cheaper homes don’t necessarily translate into easier purchases. Higher mortgage rates increase repayments and reduce the amount banks are willing to lend, potentially offsetting the benefit of lower purchase prices.
Tony Bice, owner of First Choice Mortgage Brokers, said higher interest rates and living costs had eroded borrowing capacity, leaving many first-home buyers no better off despite falling property prices.
“In the 25 years I’ve been a mortgage broker, I’ve never seen the market quite as quiet as it is now or as tough to borrow in,” he told The Money Edition.
Bice estimated that a first-home buyer earning $120,000 a year, with a $100,000 deposit and no dependants or other debts, could have borrowed around $665,000 in January.
That figure has since fallen to approximately $600,000, a reduction of $65,000, or almost 10 per cent, as mortgage rates have climbed.
“The amount that properties have dropped is still nowhere near enough for a first-home buyer to be able to afford to get into the market at that lower price anyway,” he said.
Bice said the slowdown was also affecting his business, with the number of loans he writes falling from around 10 to 15 a week to just two or three.
Where affordability has improved
Brisbane recorded the biggest quarterly improvement in housing affordability at 5.6 per cent, followed by Perth (5.2 per cent) and Sydney (4.9 per cent).
But the relief comes as Australians continue to face significant differences in living costs depending on where they live.
As The Money Edition previously reported, Hobart recorded the highest annual inflation rate of any capital city in August at 4.8 per cent, followed by Adelaide (4.7 per cent) and Darwin (4.5 per cent).
Housing costs were a major driver, rising 7.9 per cent in Adelaide, 7.6 per cent in Darwin and 7.2 per cent in Hobart, compared with the national average of 5.7 per cent.
Melbourne recorded the lowest annual inflation rate at 3.5 per cent, followed by Sydney at 3.9 per cent.
According to HIA, households now require 1.8 average incomes to comfortably service a mortgage on a median-priced dwelling in both capital cities and regional Australia.
The association considers a home affordable when a single average income can comfortably service mortgage repayments. That bar is a high one to reach in this day and age.
Why the relief may not last
Devitt warned that Australia’s housing shortage could push prices higher again once confidence returns to the market, even if interest rates remain elevated.
“Australia is not building enough homes to meet the housing needs of its growing population,” he said.
He argued that strong population growth and constrained home building had previously outweighed the effect of higher interest rates on property prices.
The outlook remains uncertain, however, as further interest rate increases could put additional pressure on prices and households’ borrowing capacity.
Wednesday’s release of the ABS’s latest consumer price index figures for September shows inflation is still running too hot in Australia, having jumped 4.3 year-over-year, up from 4% in the prior period.
That’s likely to give the Reserve Bank ammunition to hike rates for the fifth time on November 3, with some estimates suggesting a $700,000 mortgage with 25 years remaining on a loan could add an additional $100 to monthly repayments.
Topics: Housing, Interest Rates, Mortgage, Mortgage rates