Housing affordability 'obliterated' as first home buyers flood market during COVID

author-avatar By on March 03, 2021
Housing affordability 'obliterated' as first home buyers flood market during COVID

First home buyers raced to enter the property market during the COVID-19 pandemic, but extra demand and rising house prices could "obliterate" housing affordability.

Bigger home loans and surging house prices saw housing affordability in Australia decline nationally in the December quarter 2020, according to the Real Estate Institute of Australia's (REIA) latest Housing Affordability Report. 

The report's measure for housing affordability - the proportion of income required to meet loan repayments - increased nationally by 0.9% to 34.8%.

Mortgage stress is commonly defined as when a household is spending more than 30% of their gross (pre-tax) income on home loan repayments. 


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.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 20, 2021. View disclaimer.


REIA President Adrian Kelly said the property market has been lifted up by first home buyers racing to take advantage of favourable conditions and enter the market.

"The market defied the doomsday predictions with median house prices rising across the country in 2020 with demand driven mostly from first home buyers," Mr Kelly said.

“Australian first home buyers increased their market share by 50.4% over 2020, motivated by low interest rates and the range of first-home buyer incentives on offer."

The number of first home buyers increased to over 45,000, and they now make up 41.9% of owner occupier dwelling commitments.

“Seeing this trend in conversion to home ownership is particularly great news given the challenges many tenants and investors faced over the pandemic however surging house prices could see housing affordability obliterated unless measures to improve supply are implemented," Mr Kelly said.

"This particularly applies to regional parts of Australia.”

See also: Sydney named third worst city in the world for housing affordability

housingaffordability44

The proportion of income required to meet average mortgage repayments and median rent payments for a three-bedroom house. Source: REIA Housing Affordability Report.

While housing affordability was better year-on-year by 0.7% nationally, it was worse in New South Wales where the proportion of income required to meet mortgage repayments is now 44.6%, making it the "least affordable state".

Meanwhile, the Northern Territory is now the most affordable with the proportion of income required to meet loan repayments 21.9%.

"It is now more affordable to buy than rent in the Northern Territory,” Mr Kelly said.

See also: Is Australia in a housing bubble?

Rental affordability worsens as regional vacancy rates tighten

The exodus from capital cities to regional areas during COVID-19 has seen rental vacancy rates tighten to as low as 0.1% in some parts, pushing up rental prices as tenants compete for a limited supply of properties.

The report found the proportion of income required to meet rent repayments increased to 24.0% nationally, up 0.4% over the past 12 months.

Rental stress is commonly defined as spending more than 30% of income on rent, though the sweet spot is generally 25%.

See also: How much should you spend on rent?

“Tasmania is now the least affordable state to rent with the proportion of income required to meet rent repayments now a staggering 29.5%, 5.5 percentage points higher than the national level," Mr Kelly said.

“Western Australia is the most affordable, despite the proportion of income required to meet median rents increasing to 17.8%."

It comes as new Domain research revealed competition between tenants will remain fierce as rental vacancy rates remain tight, with the national vacancy rate sitting at 1.9%.

Rental Vacancy Rates Australia
Location Feb-21 Jan-21 Feb-20
National 1.9% 1.9% 1.7%
Sydney 2.8% 2.9% 2.6%
Melbourne 4.7% 4.6% 1.6%
Brisbane 1.4% 1.6% 2.1%
Perth 0.7% 0.7% 1.8%
Adelaide 0.6% 0.6% 0.8%
Hobart 0.5% 0.4% 0.6%
ACT 0.8% 0.9% 1.0%
Darwin 0.8% 0.8% 3.2%

Source: Domain

Renters in Melbourne and Sydney are likely to have the most luck finding a rental property. 

Sydney's vacancy rate rose from 2.6% to 2.8% in February, while Melbourne's vacancy rate surged to 4.7% in February compared with 1.6% the same time last year, as people flee the bigger capital cities.

Domain senior research analyst Dr Nicola Powell said the biggest capital cities are becoming ghost towns.

"In Sydney and Melbourne, the general rule of thumb is that the closer you get to the city, the higher the vacancy rate,” she said.

In the Melbourne CBD, the vacancy rate was a whopping 7.6% in January according to SQM research, while Sydney CBD had a vacancy rate of 5.8%.

Of the remaining capitals, only Brisbane had a vacancy rate above 1%.

"Most of our capital cities remain tight and remain competitive for tenants and what we can expect is rents are going to rise," Dr Powell said.


Photo by Arvin Wiyono on Unsplash

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.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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