Victoria’s housing affordability hits worst level in more than three decades: PropTrack Housing Affordability Index

Victorians are feeling locked out of the dream of home ownership, with exclusive new analysis showing just how out of reach it is for so many. Here are the facts.

New analysis shows that housing affordability is at its lowest in more than three decades.

Housing affordability in Victoria has plunged to its lowest level in more than three decades. Steep interest rate hikes and skyrocketing home prices have locked many Victorians out of the dream of home ownership with little reprieve in sight.

But there is a silver lining, with experts indicating a rising number for sale this spring should stop prices accelerating rapidly.

The PropTrack Housing Affordability Index, released exclusively to News Corp Saturday, analyses affordability based on the share of homes that households can afford to purchase —whether they’re a low-income family or a top-earning executive from 1995 to today.

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It’s found the share of homes a typical household can afford to buy right now has never been lower.

Alarmingly, the state’s typical $116,000 household earnings cover loan repayments for fewer than one in 10 of the homes sold across the state last year, assuming they were purchased with a 20 per cent deposit and buyers only spend 25 per cent of their income on their mortgage.

Even families bringing home $200,000 or more each year, the nation’s top 20 per cent of income earners, could afford less than half those sold.

That means even those on the highest wages must have substantial wealth and would likely need to sell another home before they can afford to purchase most of the state’s houses — especially in high-priced Melbourne.

Mr Moore said the deterioration in affordability had been driven by a dramatic rise in mortgage rates combined with rising home prices.

The lowest income earners have effectively been priced out, unless they are willing to risk mortgage stress, receive a significant windfall or an inheritance.

Separate mortgage repayment figures assessed by the Index, which do not factor in the difficulty of saving a deposit, show Victoria’s typical $116,000 household income would have to spend 35 per cent of that sum on repayments to afford the state’s $705,000 median priced home — well above the 30 per cent threshold usually considered to be mortgage stress.

It is also only slightly below the peak of 36.5 per cent set in 1989 when bank interest rates climbed to 17.5 per cent.

PropTrack economist Angus Moore said the deterioration in affordability had been driven by a dramatic rise in mortgage rates combined with rising home prices, particularly during the pandemic.

Mr Moore said the average time it takes to save a 20 per cent deposit for an Australian household that earns a median income is now 6.2 years — if they can save 20 per cent of their income.

He noted that first-home buyer activity in 2023 was half what it had been in 2021.

“We obviously saw house prices surge in 2021 during the pandemic, but not only is affordability as bad or worse, accessibility is far tougher now,” he said.

“We saw a lot of first-home buyers jumping into the market in 2021 and 2022 because of low interest rates. That’s obviously changed very quickly, and we’ve seen that in first-home buyer activity this year.”

3 Macka Ave, Greensborough is on sale with a price guide of $1.15m-$1.265m.

The home is a multi-level design with four bedrooms.

The covered alfresco overlooking the backyard.

Mortgage Choice broker David Thurmond said many of his clients in Melbourne’s south east were having to compromise on quality, size or their desired suburb.

“This time last year, a first-home buyer, for example, earning $65,000-$70,000 a year could afford a house at $600,000 and now that same client needs $90,000-$100,000 a year to afford that same $600,000 house,” Mr Thurmond said.

But he warned against waiting for predictions of an up to 30 per cent property market price collapse, which had yet to occur despite predictions being made last year.

“In actuality, we’ve seen the market go sideways, and now it’s starting to tick back up again,” Mr Thurmond said.

“So all those that were holding off for reduced property prices, they won’t have any luck.”

3/22 Kitchener Rd, Pascoe Vale is on sale with a price guide of $680,000-$730,000.

The dining area opens out to an entertainer’s courtyard.

The home is walking distance to Westbreen Creek and Cole Reserve.

Amy Lunardi Property founder and buyers advocate Amy Lunardi said buyer activity had picked up in the last couple of months as buyers recognised that there had been a more modest downturn than some had predicted, but could see the Reserve Bank’s decision to pause interest rates would boost confidence.

“I think now is actually a really great time to consider jumping in because prices are still lower than they used to be,” Ms Lunardi said.

She is currently pointing families and young professionals to Pascoe Vale, Greensborough and Bentleigh where they should see good value for money.

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Originally published as Victoria’s housing affordability hits worst level in more than three decades: PropTrack Housing Affordability Index