House prices continue to slide in Australia, with the market recently hit by the steepest annual fall in 15 years.
But a comparison of the country’s average annual income against median house prices in our capital cities has revealed buyers trying to crack into their local market still face a major uphill battle.
Almost a third of the country’s borrowing owner-occupied households are living with mortgage stress, research has suggested.
That means more than one million households are spending more than 30 per cent of their income on home loan repayments.
The ABS estimates the national earning average for a full-time adult worker to be around $82,400 a year.
To avoid mortgage stress, a person earning this income could borrow around $450,000 – a number that falls short of Sydney’s $900,000 median house price or Melbourne’s average of $740,000.
Sarah Tindall, Research Director at RateCity.com.au, said single dwellers will struggle to buy.
“Unless you have huge savings, and a huge income, then buying in our two biggest cities will be largely out of reach for singles,” said Ms Tindall.
For buyers in Perth and Adelaide, however, the latest median home price figures show the average annual income provides a more realistic path into the housing market.
Avoiding mortgage stress, here’s what an average Australian’s income will actually buy them in their local property market.
Despite Sydney house prices falling 9.7 per cent in the last year, the city’s median house price still sits above $900,000, according to the latest CoreLogic data.
With an average full-time income of around $83,600 in NSW, a single Sydneysider could borrow around half the median price and avoid mortgage stress.
Breaking that down, if a person earning the state’s average took out a home loan at 4.5 percent for 30 years, they could borrow roughly $412,500.
Assuming they were in a position to pay a 10 per cent lump sum deposit and cover the cost of stamp duty, that would allow for a spend of $450,000 on a home.
Based on Domain’s median house and unit prices for individual Sydney suburbs, this is likely to put them living more than 40 minutes from the CBD.
According to Domain Research Analyst Eliza Owen, the market drop could be an opportunity to revisit areas that were out of reach for some buyers 12 months ago.
“Look for a spillover of development near popular, established hubs” says Owen, suggesting Bankstown, Belmore and Lakemba as areas “placed for long-term growth.”
Victorians have a bad record when it comes to spending beyond their means, with more than 200,000 home owners in the state living in mortgage stress.
Buyers in Melbourne have seen some slight relief with real estate prices dropping 8.3 per cent in the last 12 months.
However, the city’s median house price of $740,425 is likely to still be out of reach for many in the state, with Victorians earning an average of just over $80,400 a year for full-time work.
This translates into an affordable property purchase of around $441,000. Based on median prices for Melbourne’s suburbs, it’s also likely to translate into a commute of at least 40 minutes.
Experts are predicting good news for Brisbane home owners, projecting market growth in 2019, in part thanks to a number of people moving to the Sunshine State to find more affordable housing.
At the height of the 2017 housing boom in Sydney, it is estimated over 51,000 residents migrated from NSW to Queensland.
Property analyst Eliza Owens indicated that while this in part drives demand and prices, it’s not all bad.
“Many are still migrating to Sydney and Melbourne from smaller cities for employment opportunity.” Ms Owens said.
For Brisbane buyers, an affordable house based on the state’s average $80,000 full-time income is still $100,000 lower than Brisbane’s median house price of $540,750.
South Australians have the second-lowest earnings in the country behind Hobart.
The average income for all employees, including part-time workers, is just under $56,000 a year, making a house purchase of $300,000 an affordable option. For full-time employees, this jumps to over $440,000 off the back of an average income of $75,290.
This is good news for buyers in the City of Churches as it falls within the city’s overall median home price of $430,711.
Median unit prices in Adelaide are much lower than Sydney and Melbourne, making living close to the CBD, or in popular coastal suburbs like Henley Beach a feasible choice.
With full-time workers earning an average of $1743 a week, West Australians have the highest income in the country.
That works out to an income of more than $90,000 a year, which allows for a property splurge of just under $500,000.
Against a median house price of $465,120 in Perth, and a median unit price closer to $363,000, residents of the state’s capital have many more affordable options than their east-coast counterparts.
Prices in Darwin stabilised during the second half of last year, with a house in the Top End’s capital setting you back $502,000 on average. This is just slightly more than what the average Territorian can afford to buy, with the state’s average income permitting a purchase of around $476,000. Unit prices, however, average around $300,000 in Darwin, making apartment living an affordable possibility.
Hobart saw the biggest rise is house prices last year, with CoreLogic revealing 7.4 per cent growth.
Tasmanians have the lowest average earnings in the country, with full-time workers taking home $71,620 a year. That allows for a $392,500 property purchase – $100,000 shy of Hobart’s median house price of $494,810.
The affordable purchase figure drops to just over $295,400 when you take into account the state’s casual and part-time workers, who earn an average of $53,880 a year.
Hobart has seen what Eliza Owen describes as ”a ‘spillover’ of growth”, where investors who have been pushed out of bigger cities outbid locals interstate.
‘House prices have risen… house rents are up… and the number of rental vacancies across the city are down to just over 100 dwellings as landlords seek higher rents or utilise Airbnb for their property’.
AVOIDING MORTGAGE STRESS
Although out-of-cycle hikes and low wages growth could put more people in danger of mortgage stress, Ms Tindall said ‘banks are lending more prudently’.
But if yesterday’s damning banking royal commission findings don’t limit excessive lending, there are some things borrowers can do to prevent mortgage stress.
Ms Tindall warns buyers not to overstretch the budget from the outset and ensure they leave money in reserve for emergencies. She also says it’s important to question a rate hike.
“If your bank lifts your interest rate, then don’t take it laying down.”
She says ‘do your homework’ and shop around for a chance to save money and consider refinancing to a more competitive rate.