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The latest ANZ-CoreLogic Housing Affordability Report – September 2024 has outlined the ‘silver lining’ of Melbourne’s softening property market among worsening affordability in other capital cities.
The report found that the national median dwelling value-to-income ratio increased to 7.9 in June 2024, up from 7.5 a year prior, with the median income household across Australia (assuming a gross income of $100,000 per year) needing a “near-record high” of 10.6 years to save for a 20 per cent deposit on a home.
Additionally, servicing a new loan on the median dwelling value for this cohort would recover over half of their income at 50.3 per cent.
However, dwelling values in Melbourne have steadily declined, down 4.9 per cent from its 2022 peak, making Melbourne dwellings more affordable than its capital city counterparts. This represents a decline of $40,000 in the median dwelling value, which currently sits at $776,000.
According to the report, the improvements in Melbourne’s affordability have been driven by a mismatch between supply and demand, with values falling and incomes rising (up by 8.8 per cent during the same period) simultaneously.
The dwelling-to-income ratio also fell to its lowest level in almost four years to 7.1 in June 2024, with Hobart being the only other capital to see a decline during this period.
Meanwhile, Brisbane and Adelaide have their dwelling-to-income ratios currently at record highs, which rose 13.5 per cent and 13 per cent, respectively.
Furthermore, the time needed to save for a 20 per cent deposit, assuming an annual household savings rate of 15 per cent, was still somewhat high across Melbourne at 9.5 years; however, this is down from 9.6 years in June 2023 and the record high of 11 years recorded in December 2017.
Melbourne went from the seventh most affordable city in Australia in June 2021, to the fourth most affordable just three years later when factoring in local median household incomes against dwelling purchase values.
Melbourne now sits behind Darwin, Canberra, and Perth in terms of affordability. The report found that it may not be long before Melbourne jumps up another rank given the recent price momentum.
The portion of income needed to service a new loan in Melbourne has decreased this quarter, despite the cash rate remaining unchanged since November of last year.
In June, a median income household would require 45.2 per cent of its income to service a new mortgage on the median dwelling in Melbourne, down from 45.4 per cent in March and below the record high of 46.4 per cent in March 2008.
Currently, Melbourne ranks as the fourth most affordable city for servicing a new loan, behind Darwin (25.5 per cent), Canberra (40.2 per cent), and Perth (44.6 per cent).
While affordability has improved for home owners and potential buyers in Melbourne, rental affordability continued to decline in June.
The portion of income required to pay rent at the median household income level remains relatively manageable at 28.2 per cent, up from the five-year pre-COVID-19 average of 26.6 per cent.
Although purchasing demand in Melbourne is weaker than usual, the rental market remains tight. Rents in Melbourne grew by 7.0 per cent in the year leading up to August, having consistently increased over the past few years.
Average annual rent growth over the last three years stands at 8.4 per cent in Melbourne, significantly higher than the average annual rent growth during the 2010s (2.4 per cent).
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