The 'problem' with rapid home price increases - saving for a deposit

author-avatar By on September 15, 2021
The 'problem' with rapid home price increases - saving for a deposit

First home buyers are being priced out of the market by rapid increases in house prices, but experts warn it is only going to get harder to save for a first deposit.

As the property market continues to boom, saving for a first house deposit is becoming harder than ever.

EY Oceania chief economist Jo Masters told Savings.com.au that net wealth is actually on the rise, but those yet to break into the market are the ones missing out. 

"The problem is not 'I can't afford a mortgage', it's 'I can't save enough for a deposit'. And that's been a combination of sharp rises in house prices, and restrictions on needing a 20% deposit," Ms Masters said.

"When we think about homeownership, there's two aspects to it. One is your ability to service your mortgage.

"So once you've bought a home, can you afford the mortgage that you have? Obviously, interest rates are so low, even though average loan sizes have gone up, our ability to service those [even with] low wage growth has actually improved.

"The other thing that for first time buyers in your ability to save a deposit. And that's really the hurdle in Australia to homeownership."

ABS data shows the mean dwelling price in Australia broke through the $800,000 barrier, now sitting at $835,700 - about $50,000 higher than last quarter's mean price.

The common rhetoric used to combat rapid house price rises has been to raise the Reserve Bank cash rate. 

However, at an address on Tuesday, RBA Governor Dr Philip Lowe said raising the cash rate would adversely affect jobs and wages growth.

"While it is true that higher interest rates would, all else equal, see lower housing prices, they would also mean fewer jobs and lower wages growth," Dr Lowe said.

Ms Masters also said that when looking ahead to 2022, this gap in income to house prices is only going to widen further.

"When we look at the fundamentals over the next two years, they do point to further house price appreciation, [and] ongoing, very anaemic wage growth," she said.

"When we look at the drivers that have been pushing house prices up, they likely have further to run. Interest rates are going to remain very, very low.

"The labor market is expected to bounce back from these restrictions. So therefore, job security is expected to remain quite high.

"We're likely to open our borders sometime in 2022. And bring in that sort of population growth demand into the market... also, investors are coming back into the market."

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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.


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Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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