Property prices plummet in July, but homebuyers still need to save six-figure deposits

The latest CoreLogic research shows that property prices across the country are falling at a rate comparable to the 2008 financial crisis. However, values appear sky-high for many Australians, as they are still up from the previous five-year average.

First home buyers may be shocked to discover that, despite the headlines, you may still need to save a six-figure deposit to get a foot on the property ladder and avoid Lender’s Mortgage Insurance.

Property values may still be relatively out of reach for the average Australian, particularly in a time of rising cost of living pressures.

Property prices fall in July

CoreLogic’s Home Value Index found that in July 2022, Australian dwelling values fell by 1.3% - the third consecutive month of decreases. The sharpest month-on-month decrease was recorded in Sydney at a 2.2% decline, followed by Melbourne and Hobart, where values fell by 1.5%.

Interestingly, Perth, Adelaide and Darwin recorded value growth in July, at 0.2%, 0.4% 0.5% respectively. However, in an era of rising interest rates, it’s not uncommon for areas with higher property prices to begin with see declines more immediately.

Regional markets are also experiencing value declines, with the combined regionals index seeing its first monthly decline since August 2020 (0.8% drop). While the regional markets are still “outperforming their capital city counterparts”, according to CoreLogic, these figures indicate that they are also vulnerable to falling values.

CoreLogic’s Research Director, Tim Lawless, said: “Although the housing market is only three months into a decline, the national Home Value Index shows that the rate of decline is comparable with the onset of the global financial crisis (GFC) in 2008, and the sharp downswing of the early 1980s.

“In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years,” he said.

That being said, the median house value in Sydney and Canberra is still over a million dollars, with Melbourne not too far behind. The national median house value now sits at $816,659, which means achieving the Great Australian Dream of owning property is not a walk in the park for most, even with prices on the decline.

For ordinary Australians, prices are still sky-high

While prices may be falling quickly, they’re still higher than they were prior to March 2020 – the start of the pandemic.

Tim Lawless said: “It’s important to remember the context of these statistics. While national home sales are falling from record highs, they are still 9.2% above the previous five-year average for this time of the year.”

For homebuyers hoping to get a foot on the property ladder, the latest months’ decline in values may not be a big enough push to make this dream achievable yet.

Would-be buyers are also battling higher interest rates in a rising inflation environment while trying to save up a deposit. Rising interest rates mean the amount homebuyers previously could have borrowed pre-April 2022 cash rate hike is going to be lower, as borrowing funds is now more expensive. And higher inflation means that your ability to save is lessened as more of your income is spent on expenses, like groceries and fuel.

In fact, RateCity research from June showed that a family earning $150,000 would have seen the maximum they could borrow from the bank for a mortgage reduced by over $66,000 from just the first two rate hikes alone.

With even more rate hikes expected this year, and inflation now tipped to reach 7.75% by Christmas, first home buyers may be waiting a little longer to feel the housing market has become more affordable.

Six-figure deposits needed in all capital cities

If you’re hoping to avoid paying costly Lender’s Mortgage Insurance (LMI), it’s recommended that homebuyers save a deposit of at least 20%. However, in the current home loan market, this means saving a six-figure home deposit amidst rising interest rates and higher inflation.

20% deposit needed in capital cities

Source: CoreLogic.com.au. Note: Does not factor in stamp duty.

If you’re the type of borrower hoping to avoid LMI, and potentially qualify for more competitive home loans, saving a deposit of 20% may better suit your goals. The latest CoreLogic median dwelling values for July 2022 show that a 20% deposit in each capital requires saving a deposit between $100,000 - $220,000.

You may gain home loan approval with a deposit of only 10%, and also gain approval for a deposit of 2-5% if you qualify for government assistance schemes. This could be a more affordable and realistic path to take in the current economic environment. However, without a government assistance scheme, you will still need to pay LMI, which can climb into the tens of thousands of dollars range, depending on the value of the property.

• Discover how much Lender’s Mortgage Insurance could cost you with RateCity’s LMI Calculator

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