Rapid home price drops reduce time needed to save for a deposit
Affordability has seen a slight improvement as home prices drop, according to a new report from ANZ.
The rapid drop in house prices has reduced the time needed to save for a deposit by around five months in Sydney and by around six months in Melbourne, the report found.
While that savings might seem miniscule compared to the 17.1 years still needed to save a deposit in Sydney and the 13.6 years required in Melbourne, the time needed to save is likely to shrink further as prices continue to fall and wages start to rise, according to a report by The Australian Financial Review.
“We’re seeing the first signs of housing affordability in some metrics, but these are marginal compared to the deterioration that we saw through the pandemic,” ANZ senior economist Felicity Emmett told AFR. “But as interest rates rise, home value declines are expected to become larger and more widespread. Additionally, tight labour market conditions and high inflationary expectations have also contributed to an uplift, albeit gradual, in wages growth. The combination of an increase in wages growth and an acceleration of the housing market downturn should see the years required to save a home loan deposit reduce in the coming quarters.”
The ratio of home values to household income also fell by 0.1% to 9.4 over the June quarter, AFR reported.
However, the share of household income required to service a mortgage has risen to a record high amid climbing interest rates, hitting 44% in June.
In the capital cities, mortgage serviceability deteriorated the most in areas where property values continued to rise in the June quarter, AFR reported.
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“There’s a bit of a perception that if house prices fall, then mortgage affordability will improve, but actually, on our interest rate forecasts, prices would have to fall another more than 25% for mortgage serviceability to improve, and we don’t think that prices will fall that far, certainly not at a national level,” Emmett told AFR. “So with higher interest rates, we are seeing a big increase in how much people have to pay to service their mortgage, and that means on that measure, affordability will deteriorate.”
Eliza Owen, head of research at CoreLogic, said affordability would be improved by a significant price drop.
“It’s really not until you get to a 26% decline in the median dwelling value that serviceability improves amid higher rates,” Owen told AFR. “To get there, you either need to increase housing supply, reduce housing demand, or both.”
