Housing affordability improves for first time since 2021

As discussed by the Real Estate Institute of Australia (REIA), the first quarter of 2024 has seen housing affordability at its lowest since March 2021.

REIA revealed that the proportion of income required to meet average loan repayments decreased 1.0 percentage points to 46.7 per cent, which the institute said was due to stronger wage growth interest rates holding at 4.35 per cent.

REIA president Leanne Pilkington said the reduction was the first improvement in housing affordability since the March 2021 quarter, the beginning of a series of increases. The proportion of income needed to satisfy loan repayments hit a peak of 47.7 per cent in the December 2023 quarter.

Pilkington said: “Housing affordability improved in New South Wales, Victoria, Tasmania and the Australian Capital Territory, remained stable in South Australia, and declined in Queensland, Western Australia and the Northern Territory.”

The study revealed a variety of improvements across the country, with NSW seeing a 2.2 percentage point increase, and 0.9 percentage points in both Victoria and the ACT.

Despite the improved conditions, there was still a recorded drop in first home buyers, with a 25,824 decrease of 17.9 per cent over the quarter. However, numbers were still up 8.3 per cent compared to the March quarter last year. First home buyers now make up 36.7 per cent of the owner-occupiers, a decrease of 0.9 percentage points over the quarter but an increase of 1.5 percentage points over the year.

“Over the March quarter, the number of first home buyers decreased in all states and territories. Western Australia had the smallest decrease (-11.5 per cent) and the Northern Territory the largest decrease (-35.9 per cent), although with only 150 loans made to first home buyers, the Northern Territory continues to be the nation’s smallest market. The average loan size to first home buyers increased to $518,510,” Pilkington said.

“This was an increase of 0.7 per cent over the quarter and an increase of 6.9 per cent over the past 12 months. The average loan size to first home buyers increased in all states and territories except Victoria where there was a 0.4 per cent decrease. Western Australia had the largest increase in average first home buyer loans (4.1 per cent), and New South Wales had the smallest increase (0.1 per cent).”

Rising cost-of-living pressures may be causing this slump. The turnaround could be in sight, however, with the affordability on the come up.

Other compounding factors influencing the improved conditions are the average loan repayment figures. According to the report, it dropped 1 percentage point, falling to 46.7 per cent.

Meanwhile, strong wage growth and the pause on interest rates are only making things easier for potential buyers.

“Nationally, the proportion of income required to meet median rents increased 0.5 percentage points over the quarter to 24.4 per cent. Rental affordability declined in all states and territories. Declines ranged from 0.2 percentage points in Victoria to 0.7 percentage points in Tasmania,” said Pilkington.

“The Reserve Bank of Australia maintained the official cash rate at 4.35 per cent throughout the March quarter. The quarterly average standard variable interest rate remained stable at 8.8 per cent. The quarterly average three-year fixed rate also remained stable at 6.8 per cent.”

[Related: Increased incomes moderating mortgage stress: Roy Morgan]