Housing affordability reaches record low despite falling property prices

Australia’s housing affordability has fallen to its lowest recorded level, with a household earning the median income able to afford only about one in every 10 homes sold last financial year.

Data from realestate.com.au found that a household earning roughly A$125,000 could afford 12 per cent of houses and units sold nationally. The result worsened despite recent falls in property values, following stronger prices in the previous year and increases in borrowing costs.

“

challenged

Senior economist Angus Moore said three Reserve Bank interest-rate rises in February, March and May had lifted mortgage rates and reduced borrowing capacity as households already faced pressure from the cost of living. He said affordability might improve slightly if prices continued to fall, but warned that this would not represent a turning point for many buyers.

The figures assume households spend 30 per cent of gross income on mortgage repayments, with a 2.5 per cent buffer. They use median household income, which is the income of the middle household when all households are ranked, rather than the average. The Grattan Institute estimates average Australian household income at A$161,000, a figure lifted by higher earners.

“

The three RBA interest rate hikes made in February, March and May increased mortgage rates and further constrained household borrowing capacity amid an already difficult cost-of-living environment.

Affordability declined in every state covered by the report. South Australia recorded the weakest result, with only 7 per cent of properties affordable for median-income households. Victoria ranked highest at 16 per cent, though its result also fell.

Mortgage repayments relative to income reached 35.5 per cent, the highest level since 1989. That exceeds the 33.3 per cent recorded during the Global Financial Crisis, although it remains below the 37.5 per cent recorded in 1989. The report said limited housing supply would continue to weigh on affordability, especially for lower-income households.

“

Looking ahead, affordability may improve marginally if home prices continue to soften, but this is unlikely to be a turning point for many buyers.