Some home buyers are left in the cold despite falling house prices

Falls in property values are offset by a lift in mortgage rates, data shows

Some home buyers are left in the cold despite falling house prices


By Mina Martin

First-home buyers aren’t being helped much by falling prices, as declines in property values are offset by a lift in mortgage rates, new research has found.

As of the September quarter, a typical Australia first-home buyer would take 10.9 years to save a deposit – that’s barely lower than the 11.3 years required in the prior quarter, according to the latest CoreLogic Housing Affordability Report.

Time to save varied by city, and assuming a household can save 15% of its gross annual income, the report found that a first-home buyer would need to save for 12.8 years in Sydney, 10.6 years in Melbourne, 10.1 years in Brisbane, and 7.7 years in Perth, The Sydney Morning Herald reported.

Home buyers, however, would need to set aside more of their income to meet their mortgage repayments.

Servicing a new mortgage would eat up 43.3% of a typical home buyer’s income, up from 38.9% three months prior. That rises to 51.1% in Sydney, and would be 42.4% in Melbourne, 40.3% in Brisbane, and 30.7% in Perth.

Felicity Emmett, ANZ senior economist, said although property prices had fallen substantially in cities such as Sydney, slashing the time to save a deposit, this was not the full picture, SMH reported.

“While on paper we might be able to say this metric, which makes assumptions about how much people can save, suggests greater affordability, I think in reality it’s unlikely that it actually is easier to save for a deposit,” Emmett said. “The actual amount needed for a deposit might be a little bit less, but we’re in a situation where we have the cost of living running at 7% per annum.”

Unless someone paid cash, the increase in interest rates meant affordability had not improved, she said.

“It’s clearly not median income earners that are buying median-priced homes, and what that goes to show is that people earning regular incomes are to some degree priced out of these expensive markets,” Emmett said.

According to the ANZ economist, a very substantial fall in property prices would improve affordability, although she stressed this was unlikely to happen. She predicted an 18% peak-to-trough fall in house prices.

In comparing dwelling values to income, the report also found a modest reduction in this ratio.

Nationally, dwelling values are 8.2 times higher than incomes. That’s slightly lower compared to 8.5 times in the June quarter, and above the decade average of 6.9 times.

Across cities, dwellings in Sydney cost 9.6 times incomes, eight times in Melbourne, 7.6 times in Brisbane, and 5.8 times in Perth.

Eliza Owen, CoreLogic head of Australian research, said the falling deposit barrier has not offset the cost of mortgage serviceability, and offers little help for tenants spending more on rent, SMH reported.

“The median household income level would probably be dissuaded from actually purchasing the median dwelling within their region,” Owen said. “If you’re a high-income earner you might be quite comfortable servicing a mortgage with 40% or 50% or 60% of your income. If you are on a relatively low income, then it becomes extremely stressful.”

Owen said this downturn was about taming inflation, not about housing affordability, so it was unlikely prices would drop to levels that improve the metrics in the report.

The research found that the share of income required to service rent has reached 31.6% nationally and has increased in all capital cities except Hobart and Canberra over the past quarter.

Renting has become more challenging, Owen said, as tenants who were spending more on rent might not be able to save as much.

Michael Brown, Mortgage Broker Sydney principal, said the price falls made first-home buyers feel optimistic about getting into the property market, but it was not always the case.

“Interest rates are going up and changing their borrowing capacity, but the downward movement in prices is not matching that, so they’re falling behind,” Brown said. “The price changes aren’t happening as quickly as the interest rate changes are.”

More first-home buyers, he said, were looking to take advantage of the federal government’s low-deposit scheme that allows purchases with a 5% deposit without paying lenders’ mortgage insurance.

“The overall vibe of house prices falling means they think they can get somewhere now. Before, it was just an impossibility as prices were spiralling,” Brown told SMH.

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!