The Melbourne suburbs where you should have bought a house

Melbourne home buyers have been priced out of suburbs they could afford a year ago because their borrowing power has been cut faster than house prices have fallen.

Single buyers on an average Australian income have been worst hit, no longer able to borrow enough to buy a house in any part of Melbourne, CoreLogic analysis shows. Couples have been priced out of 59 suburbs where they could have bought a house last year.

Couples have been priced out of some inner-city hubs like Brunswick, as interest rates rise.Credit: iStock

Eleven interest rate hikes since May last year mean Melbourne’s property values have fallen by 9.6 per cent since peaking in February last year, but borrowing capacity has dropped by 30 per cent.

CoreLogic’s head of residential research Eliza Owen said buyers were now rethinking what and where they could buy.

“People who have a lot of savings on the side, or are selling and buying at the same time, aren’t as affected,” Owen said. “But buyers, particularly first home buyers, are starting to compromise on the location they are buying in.”

Single home buyers’ borrowing capacity has been slashed by $144,000 since April last year, from a maximum $509,000 to just $365,000, according to Canstar.

That means those on an average wage of $94,000, with a 20 per cent deposit would have a budget of $465,250 – not enough to buy a house in any suburb of Melbourne.

Last year, 11 suburbs such as Melton, Albanvale, Coolaroo and Campbellfield were within reach, but median values have held well above what a single property buyer can now afford, even though values in Campbellfield are down 12.1 per cent.

The data assumes buyers take out a 30-year loan.

Those looking to buy a cheaper unit on their own, could get into 97 suburbs last year including Docklands, Preston and Coburg, but that has been cut to 22 this year.

Couples have had their buying power cut by $335,000 – with their maximum budget cut to $1,062,500.

While they can afford to buy a house in 203 suburbs, 59 have been stripped from the list, including Abbotsford, Blackburn, Brunswick, Brunswick East, Brunswick West, Preston and Chelsea. That’s despite house values in Chelsea falling 17.7 per cent over the past year.

Commonwealth Bank head of Australian economics Gareth Aird said there was now genuine concern for people who had not been able to get into the housing market, given borrowing capacity had plummeted as prices stabilised.

“It’s a pretty ugly scene for those people who want to get into the housing market,” Aird said. “That’s where you’re hearing the term the “Bank of Mum and Dad” coming into play.

“People are getting assistance from their parents because that’s the only way they’ll get into the market,” Aird said. “A lot of people are being locked out of homeownership if their parents don’t have the money to help them out.”

CBA has updated its predictions nationally, believing house prices will rise by 3 per cent this year and a further 5 per cent next year.

Upward pressure on house prices is coming from a rise in overseas migration which is tightening rental vacancy rates and pushing rents higher, attracting both investors and tenants to want to buy property, Aird said.

A falling number of new builds were also seeing demand for housing outstrip supply.

New build approvals are falling at the same time demand for housing is rising.Credit: Jason South

New home approvals are at their lowest point in two-and-a-half years, down 15 per cent year-on-year, with just 180,893 approvals, ABS data from March shows.

First home buyers Cameron and Amanda McKnight are facing that stark reality as they prepare for an auction on Saturday.

The couple, originally from Canada, are hoping to buy a knock-down rebuild property in Preston to stay close to where they work. They have been priced out of buying a home that would easily fit their dog, Kolo, and any future children closer to the city.

“I’ve had to change absolutely everything, and we wouldn’t be able to buy at all without help from back home,” Cameron McKnight said.

Cameron and Amanda McKnight had to change their plans to buy a house as their budget has been hit by rising interest rates.Credit: Justin McManus

He said although they have the money for the land, the knockdown and rebuild will have to wait while they save.

“We’re ready to start a family now and get going, but this has essentially made it impossible,” McKnight said. “It’s making us have to work for a few more years while we save.”

The McKnights want to get into the market now, before prices rise again.

The couple’s buyers agent Wendy Chamberlain said buyers were keen to get in before another hike in both interest rates and house prices.

Buyers with pre-approval for a loan were now feeling the pressure to buy before their three-month approval period ended, looking for a smaller property, or one in worse condition than they originally wanted.

“People are also compromising more now on what they’ll buy to get something where they want to be,” Chamberlain said.