Falling home prices see better housing affordability across Australia

Housing affordability across the country is looking up, as property prices come down nationally due to COVID-19.

With interest rates falling across the board, servicing a mortgage has become slightly more affordable, the Real Estate Institute of Australia’s (REIA) Housing Affordability Report, released today, found.

Nationally, 34.5 per cent of a family’s income is required to meet mortgage repayments, down by 0.2 percentage points in the three months to June.

Source: REIA.

Adrian Kelly, REIA president, said declining variable interest rates have helped make mortgage repayments more affordable for families. 

“Even though the family income only increased 0.1 percentage point during the period, the average loan repayment decreased 0.6 percentage points through a drop in the average variable standard interest rate,” he said.

The Reserve Bank of Australia held the cash rate at a record low of 0.25 per cent yesterday, an indicator that lenders may continue to cut interest rates as competition in the industry flares up. 

Property prices in Australia decreased by 1.7 per cent in the three months to August 2020, the latest CoreLogic figures showed. Values have been falling for four consecutive months after COVID-19 began in Australia. 

The most unaffordable and affordable states and territories in Australia

Traditionally the most expensive state to purchase a home in, NSW residents saw housing unaffordability ease slightly in the June quarter.

Mortgage holders in NSW are devoting 42.3 per cent of their household income to making loan repayments. While this is down by 0.2 percentage points in the June quarter, it jumped by 2.4 percentage points compared with the same quarter in 2019. 

Despite housing affordability improving in NSW, the proportion of household income going to a mortgage is 7.8 percentage points higher than the national benchmark, making it the least affordable state or territory for homebuyers.

Victorians also found purchasing a home closer within reach, with 36.8 per cent of a family’s income required to service an average mortgage, declining by 0.7 percentage points in the June quarter, but 2 percentage points higher than the same time last year.

The most affordable state or territory to snap up a home in Australia is the Northern Territory, where buyers devote as low as a fifth of their household income to paying off the mortgage. This crept up slightly by 0.2 percentage points in the three months to June, but came down by nearly 3 percentage points from last year.

Where property buyers are most active

Notably, a quarter of all first home buyers in the country are from NSW, while a third are from Victoria. One in three buying a home to live in NSW are first home buyers, and the cohort accounts for some 42 per cent of Victoria’s owner-occupiers. 

First home buyers in NSW are taking out larger loans than before, with the average loan size to first-timers growing to about $515,000, up by 16 per cent in the 12 months to June 2020.

A similar trend is being seen in Victoria. The average loan to first home buyers surged by 12.8 per cent over the year to about $442,000.

NSW residents carry the biggest mortgages across the country on average, about 22 per cent higher than the average Australian home loan, while Victoria’s is 4.5 per cent higher than the national benchmark.

The average residential mortgage in NSW and Victoria is about $605,000 and $515,000 respectively, both ballooning by 17 per cent over the year to June 2020.

Expensive housing in NSW and Victoria failed to deter those looking to get their foot on the states’ property ladders. The number of mortgages to first home buyers in NSW jumped by 16 per cent over the year to 6,801, while in Victoria, it rose by 11 per cent to 9,119.

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