Home affordability peaks as FOMO returns to drive property prices

After a brief respite, housing affordability is on the way back down, new research shows.

First-home buyers Nick and Ash Hawkins at 1 Voce Court, Belmont. Picture: Supplied

After a brief respite, housing affordability has already peaked and the market is heading towards matching the record highs of 2017 in the first half of next year if prices continue to climb at their current rate, according to new ANZ and CoreLogic research.

Affordability peaked in June after prices fell 8.4 per cent nationally from the 2017 high. At the same time, national residential property values were 6.5 times higher than gross annual household incomes – the lowest level since December 2013 – providing temporary affordability relief.

ANZ senior economist Felicity Emmett said the rebound in prices continued to be driven by the combined factors of record low interest rates, easier access to credit and more certainty around property tax arrangements.

READ MORE: McMansions falling out of favour | Hong Kong unrest boosting Sydney house prices: Credit Suisse | Chinese pay $45m for city luxury

“Although affordability has improved following a downturn in housing values, June 2019 marked a turning point, as dwelling values again began to outpace household incomes across capital cities, with the exception of Perth and Darwin,” Ms Emmett said.

CoreLogic’s head of research, Tim Lawless, said the return of the “fear of missing out” was helping to push prices higher.

“We see more urgency coming back into the market, especially in Melbourne and Sydney, where housing values have risen 6 per cent and 5.3 per cent since May. If this trend continues, we could see property prices reach new highs early next year,” Mr Lawless said.

In good news for renters and hopeful buyers, the research showed households were dedicating a smaller percentage of their income to paying down their mortgage compared to 2004, while renters are spending the lowest proportion of their income on housing since 2007.

“This year, we have also seen an increase in the number of areas where it is cheaper to buy than rent, which can be attributed to the lowest interest rates since the 1950s, together with lower housing prices relative to the market peak,” Mr Lawless said.

Paying off a mortgage in Sydney and Melbourne is over 10 percentage points higher than paying rent, despite improved affordability, the study found. In the smaller capitals of Brisbane, Adelaide, Hobart and Perth, renters are saving between 0.4 and 4 percentage points of compared to homeowners. Darwin is the exception to the rule, where it is cheaper to service a mortgage than pay for a rental due to the low vacancy rate in the capital driving rents up.