A decade of savings isn’t enough for most first home buyers

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According to new research, It takes a first home buyer almost 11.5 years to save a 20 per cent deposit for an average priced home. This is a record high according to CoreLogic’s latest housing affordability report and has increased from 6.8 since the onset of COVID-19 two years prior.

CoreLogic says from the end of September 2020 to the end of March 2022, Australian home values saw an “extraordinary upswing”.

During this period, house prices increased 27.8 per cent across Australian capital cities.

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From ABC

It takes a first home buyer almost 11.5 years to save a 20 per cent deposit for an average priced home.

And as of March 2022, the national median dwelling value was estimated to be eight-and-a-half times the median annual household income level nationally.

This is a record high according to CoreLogic’s latest housing affordability report and has increased from 6.8 since the onset of COVID-19 two years prior.

CoreLogic bases its modelling on a national median home value of $750,000 and Australian National University (ANU) income data which assumes an average of about $86,000.

CoreLogic says it takes 8.5 times the average income to service a home loan worth $750,000. 

Its Australian head of research Eliza Owen says while house prices are expected to fall nationally as interest rates continue to rise, that won’t necessarily improve affordability.

Head and shoulders image of a woman with brown hair in suit jacket.
CoreLogic head of Australian research Eliza Owen says while house prices are expected to moderate nationally as interest rates continue to rise, that won’t necessarily improve affordability. (Supplied, CoreLogic)

Falling house prices is not something that first home buyer Tarryn Hendry considered when she purchased her Brisbane property earlier this year.

It took her and her partner years to save and find a suitable property, and when they finally broke into the market, they had to spend $200,000 over their budget.

CoreLogic says from the end of September 2020, through to the end of March 2022, Australian home values saw an “extraordinary upswing”.

During this period, house prices increased 27.8 per cent across Australian capital cities.

“We started with a cost range [budget of] $550,000 to $600,000, and then we ended up purchasing a place that was that $200,000 over that,” Ms Hendry tells ABC News.

“We’re getting priced out … there was huge competition.

Play Video. Duration: 1 minute 56 seconds
Making housing affordable means house prices have to fall(Nassim Khadem)

The cost of servicing mortgage repayments is now above the decade average

CoreLogic says the portion of household income to service new mortgage repayments sat at 41.4 per cent nationally in March 2022, above the decade average of 36.5 per cent.

“This was the third consecutive increase at the national level, with higher average mortgage rates and property values contributing to the uplift,” CoreLogic’s report said.

The report suggests that in a higher interest rate environment, mortgage serviceability will become more challenging, not only tipping more Australians into mortgage stress, but also making it harder for first home buyers to get a loan they can service.

At the same time, rents are also rising, denting the ability of young people to save for a deposit.

At the national level, the portion of household income now required to service rent on a new lease increased to 30.6 per cent, up from 29.8 per cent in December 2021, and 28.5 per cent in the March quarter of 2020.

CoreLogic graph income to service rent
CoreLogic says the portion of income to service rent has also risen. 

The report says rental affordability conditions vary markedly between regions.

“Relatively weak rental market conditions across Sydney and Melbourne, especially across the unit sector through the first year of the pandemic, meant the level of income required to service rent on a new lease has actually fallen in these cities since March 2020,” it said.

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