The sharp surge in prices across most housing markets in Australia in the past decade has made it a struggle for many first-home buyers to enter the market — tides have changed, however, and it seems like Australia’s average housing affordability is at best it has been since 2016, a new report shows.
The ANZ CoreLogic Housing Affordability Study examined four factors in order to determine affordability of the housing market: the value to income ratio, the share required for repayments, and the years it took to save a downpayment.
The study found that housing affordability improved across the country in the last quarter of 2018 — however, the development was being driven by falling values rather than a substantial lift in wages.
It’s becoming easier to service a credit card loan
The amount needed to repay an LVR mortgage at 80 percent was 36.1% of the household’s gross income in December 2018. This is the lowest level recorded since December 2016.
During March 2008’s peak rates, Australian mortgage holders were required to contribute 54.2% toward their mortgage repayments
According to the study, the decrease in servicing could be due to the fact that mortgage rates have almost halved from their peak in March 2008 (at 8.7% in February 2008 to 4.7% in December 2018).
Saving for a deposit takes too long
The study also found that saving for a deposit took slightly less time, from 9.1 years to 8.9. This was calculated based on households saving 15% of their gross income to pay the 20% home-loan deposit obligation.
However, this gap is still significant compared with the time it took households to fulfill their deposit requirements ten or five years ago. The time required to save a deposit on detached homes was 9.2 years in December 2018, as opposed to 8.7 for units.
According to the study, it took 8.6 years for a house to be built, 8.3 years for a unit to be built and 8.7 years for a house to be constructed. A home built a decade earlier took 10.7 year to complete.
Values fall, income grows
According to the study, December 2012 saw a 6.7% value-to-income ratio. This is 6.8% compared to the three prior months and 7% compared with the previous year.
“The ratio of household incomes and house values was 6.9 times. This is a decrease compared to the previous years and quarters. The study shows that dwelling values are falling and that the median household income is decreasing relative to house value. We can expect further improvements in this ratio over the next quarters.
Renting is more affordable than buying
Another important finding is the rise in rent-to–income ratio. Renting a house requires 28.2% gross household income in Australia. Renting a unit is however 28.4%. These numbers prove that renting a unit is still less expensive than paying a mortgage.
Rents require less income than 32%, even at peak levels. This is due to slow rent price appreciation. The past decade has seen rents rise by 2.4% an average. But, incomes have risen by 3.2% over the same period.
According to the study, “the stronger income growth relative to rents has driven national rent to income down to its lowest point ever since June 2007,”
These are the most affordable housing market
Renters found Hobart to be the most expensive place in Australia. However, Darwin proved to be the most affordable choice for buyers. Despite the strong price drops in Sydney, Melbourne and other markets in the past year, these are still the most affordable places to buy a house.
Below is a table that illustrates affordability in Australia’s capitals and regional areas.