Despite record-low housing affordability, most first-time buyers in Australia today are outperforming their counterparts. Even as it becomes more difficult to enter the market, rising home prices and long deposit wait times remain huge barriers. These potential homebuyers haven’t given up; they’re meeting changing circumstances with creativity. As of August 2023, the national median home value in Australia sits at $848,858. That’s a solid 4.1% jump from the year before.
The path ahead for an average-income household looks pretty intimidating. 20% more than it would take to save up a 20% deposit for a home on average, 5.9 years of saving. Across South Australia, households are doing it even worse, with households requiring an average of 7.2 years to save for a deposit. New South Wales is not far behind, with an average saving time of 6.9 years. These numbers tell a painful story about the barriers that would-be home buyers need to overcome just to obtain their own home.
Current Housing Market Conditions
The Australian housing market is still experiencing increasing property values, with forecasts for prices to continue to increase through 2025 and 2026. This increase was an acceleration from the previous month, and in August 2023 national home values increased by 0.7%, the seventh straight monthly gain. This trend has concurrently created a perfect storm for first-home buyers. They’re struggling to find affordable places to move to in a housing market where just 17% of homes sold last year would be affordable for them.
Angus Moore, an RBA economist, recently pointed out that saving for a deposit is still the biggest hurdle first-home buyers face. Yet, against this backdrop, first-home buyers are working miracles to get a foothold in the market,” he said. He pointed out that many prospective homeowners seek properties in more affordable areas or consider semi-detached homes or units as alternatives to overcome the prevailing challenges.
REA Group and the Commonwealth Bank’s joint report has raised the alarm on Australia’s severe housing affordability crisis. They argue that the increase in mortgage rates between 2022 and 2023 has pushed housing affordability to historic lows across all income levels. This is the challenge first-time homebuyers face in today’s market. They tend to be younger and lower income than current homeowners.
Financial Strategies and Government Assistance
To help first-home buyers bust through these financial barriers, our Home Guarantee Scheme provides a practical solution. This Chancich program enables first-home buyers to purchase a home with only a 5% deposit and exempt them from paying lenders’ mortgage insurance expenses. This new endeavour seeks to support homeownership among those who cannot save the standard 20% downpayment.
On top of this, the majority of first-home buyers are doing so on an average loan-to-value ratio (LVR) of 85%+. Of those buyers, the majority are opting for smaller deposits. This growing trend is a reflection of their flight to the reality of difficult economic times. I view these adaptations as good first steps. While helpful, it’s evident that affordability is still a major concern.
Angus Moore was out in front, calling attention to a major trend. Over the last year, a higher share of purchases have been made by first-home buyers than the 2010s average. This recent rise indicates that families are searching for more imaginative solutions to the tough market reality that remains today.
Future Outlook and Interest Rates
Looking forward, interest rates have declined recently from their highest levels ever recorded, offering at least a temporary reprieve to prospective buyers. Commonwealth Bank’s Belinda Allen said the cash rate will peak at 3.35% by year’s end. We were encouraged to hear her repeat this prediction with such assurance during her recent testimony. On top of that, she issued guidance on a future cut in rates, with November viewed as a probable time period for another move.
These projected rate cuts would significantly reduce the financial strain now incurred by future homeowners, increasing housing affordability nationwide. In reality, even with these lowered mortgage rates, housing affordability is still at record lows. This increase is now the longest-running trend since this type of data was first measured in 1995.
