Key points
- Housing affordability is little improved, despite property price falls.
- Rising interest rates mean buyers face higher mortgage repayments and cannot borrow as much money.
- Prices would have to fall by 30 per cent before affordability would improve, which is unlikely to happen.
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House prices may be falling but bargains are few and far between, even in outer-suburban Melton where Laurel Maddalon bought her first home just before Christmas.
The 44-year-old library officer had been looking to buy for a while, and realised the suburb was becoming much harder to afford for a person on a single income.
Laurel Maddalon found it a challenge to buy her first property on a single wage.Credit:Paul Jeffers
“When I started saving for a deposit two years ago, Melton was one of the last affordable suburbs to buy in on a single income,” Maddalon said. “But I watched as prices started to explode during COVID, and I was only able to save just enough for a 5 per cent deposit.”
Even though Melbourne’s prices recorded their steepest fall in 3 ½ years in 2022, dropping 5.6 per cent on Domain figures, housing affordability has shown little improvement.
Prices are only back to mid-2021 levels and showed signs of stabilising late last year, while rising interest rates mean buyers face much higher mortgage repayments and cannot borrow as much money.
A single person earning an average income of $92,000, with a 20 per cent deposit saved, could have borrowed enough to buy a property worth $710,000 last April, Canstar modelling shows. That’s now down to $543,750, or 23 per cent less.
Maddalon’s smaller budget meant she had to be realistic, especially as Melton prices are 11 per cent higher than a year ago, Domain data shows. She used the federal government’s First Home Super Saver Scheme to save and the First Home Guarantee to buy with a low deposit.
“I was keeping my expectations realistic,” she said. “I’m a single person on a single income, so I was looking at units … when you’re doing it all yourself, you don’t have the benefit of a second income which really limits your options.”
Domain’s chief of research and economics Dr Nicola Powell said house prices in Melbourne were still well above where they had been before the coronavirus pandemic struck.
Prices skyrocketed by 24.1 per cent during the pandemic property boom in 2020 and 2021, trough to peak.
Laurel Maddalon said she was realistic about what type of property she could afford.Credit:Paul Jeffers
“Property prices would have to fall substantially further for the repayments on a mortgage to match where they were when [interest rates] were at rock bottom,” Powell said.
It was unlikely that Melbourne’s house prices would fall by enough to make them affordable for many buyers, she said.
ANZ senior economist Felicity Emmett agreed there had been little improvement in affordability, due to reduced borrowing power and increased mortgage repayments.
“Our analysis suggests prices would have to fall around 30 per cent … to offset the impact of those higher interest rates on affordability, and we don’t expect prices to fall 30 per cent,” Emmett said.
“We think the impact of higher rates is going to offset the impact of lower house prices, so for buyers it’s actually going to be more difficult … there’s really no reprieve in sight.”
Barry Plant Melton partner Ned Nikolic, who sold Laurel her property, said buyers were making compromises, looking at smaller or older properties.
“They’re planning according to the interest rates,” he said.
“We’ve been speaking to people who want a house at a certain price point, that are now looking at a unit or an older house because of their budget.”
Buyers advocate Cate Bakos said buyers were now becoming more inventive with their property purchases to be able to afford it.
“Some are getting creative and buying with a parent. So, the home is half an investment for the parents, and half a home for the child,” Bakos said.
Westpac senior economist Matthew Hassan said affordability pressures were pushing buyers towards snapping up units, as people tried to avoid the worsening rental market, where rents were getting more expensive.
“Units became significantly more affordable than detached houses [during COVID] and as rents are going up, if you’re looking to buy affordably, a unit is the style of housing you’re looking for,” Hassan said.
Maddalon had been renting in Melton for 2 ½ years, which was one of the reasons she decided to buy.
“It will be the first time living on my own, but I won’t be subjected to the renter stress of never knowing when the rent is going up, or, praying I find another rental in this market. That was a really scary prospect for me,” Maddalon said.
“My unit is tiny, but it’ll suit me as a single person. It’s clean, renovated and ready to live in, and it will be mine.”
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