Typical new homeowner in dire mortgage stress as affordability plummets

New borrowers earning a median household income ($101,000 per annum, as of September) buying a median-priced property with a 20% deposit will find more than half of their income goes towards servicing their mortgage. 

Renters don’t fare much better, with a third of the median Australian household income required to cover typical weekly rent.

This is according to modeling from the ANZ POLIS Centre for Social Policy Research and CoreLogic, released in the latest ANZ CoreLogic Housing Affordability Report.

See also: How much have property prices increased in Australia?

Even high-income households are feeling squeezed

"This report highlights how squeezed even relatively high-income households are becoming at the national level," CoreLogic head of research and report author Eliza Owen said.

"There are some pockets like Hobart and Melbourne where the market is becoming more affordable, but it's unclear whether that can last.

"Part of the nature of the property cycle is that once values fall by a certain amount, sellers and developers cannot add to supply, and values find a floor."

Affordability in Australia's mid-sized capitals has deteriorated significantly in recent years, with Adelaide leading the way.

The Adelaide property market now demands 56% of a homebuyer's income goes towards a new mortgage, and nearly 35% of a renter's income goes towards housing.

^{Source: CoreLogic, ANU modelling from ANZ CoreLogic Housing Affordability Report, November 2024}

See also: Mortgage stress: The what, why, and how

Borrowers may be forced out of the market

The ANZ and CoreLogic findings align with comments from Reserve Bank of Australia assistant governor Christopher Kent, who recently suggested embattled borrowers could be forced out of the housing market altogether.

"Borrowers who are experiencing persistent difficulties servicing their mortgages, and with no further options to adjust their finances, may decide to sell their homes," he said in a speech given on Monday.

"Our liaison with lenders suggests that while more households are making this very difficult decision, it is less costly financially than otherwise given the low share of mortgages currently in negative equity."

Dr Kent also noted that the number of borrowers taking out home loans worth 80% or more of their borrowing capacity has likely increased amid rising house prices, high interest rates, and falling real incomes.

"For the same reasons, more borrowers are struggling to get a mortgage," he said.

Typical households spending 10+ years saving a deposit

Deteriorating affordability has also left hopeful homeowners saving for deposits for longer.

An average household setting aside 15% of their income must do so for more than 10.5 years - nearly four years longer than in 2019 when interest rates were at near-record lows.

However, the level of unaffordability present may suggest buyers are changing their behaviour.

"The median value to income metrics look extreme, which means people are probably finding other means to get into the market compared to how they have in the past," Ms Owen said.

"In reality, the median income household might buy something lower value than the median dwelling, and buyers in the market at the moment may be less leveraged and have relatively high income and wealth."

Meanwhile, those that can put down a larger deposit appear to be more inclined to do so in the current environment.

"The median deposit has increased noticeably for all types of borrowers over recent years, particularly for first home buyers," Dr Kent said.

"And while the first home buyer share of new loans has been a bit above average of late, the so-called bank of mum and dad may have increasingly helped many first home buyers."

Accompanying RBA figures show owner-occupiers buying in 2024 have been putting down a median deposit of approximately $300,000, while the typical first-time buyer deposit comes in at over $150,000. 

Those figures are up from around $220,000 and $90,000 respectively over most of 2020.

More homebuyers turning to apartments and townhouses 

The ongoing affordability crisis has led more buyers to purchase units, driving demand for the typically cheaper form of housing and sending prices higher.

Unit price growth is now tracking in line with that of houses, having lifted 0.9% and 0.8% respectively in Australian capitals over the three months to October.

But there may be a glimmer of hope on the horizon.

"We have seen demand for housing soften in recent months, with high interest rates, cost of living pressures, and elevated home values deterring buyer competition," ANZ economist Madeline Dunk said.

"In some markets, this has contributed to value falls.

"Looking ahead to 2025, housing affordability may slightly improve from a mortgage payment perspective as the cash rate moves lower."

ANZ expects the first cash rate cut to come in February, forecasting the Reserve Bank of Australia (RBA) will wipe 75 basis points over the course of next year, leaving the cash rate at 3.60%.

Similar predictions have come from the camps of CommBank and Westpac, but NAB doesn't expect borrowers to realise a cash rate cut until May 2025.

_{Image by Nik Shuliahin 💛💙 on Unsplash}