Surging property prices have reduced the supply of lower-priced homes for sale as housing affordability declines.
Searches for properties listed on realestate.com.au for $1 million or more are now more than double those for the sub-$500,000 level, highlighting a lack of affordable properties.
Cameron Kusher, realestate.com.au’s director of economic research, said affordability has worsened over the past year as prices soared, presenting challenges for first-home buyers in particular.
“The reduction in borrowing costs since the pandemic hit has led to increased borrowing capacities and has contributed to the large increases in prices that have been experienced,” Mr Kusher said.
“The run up in prices is leading to a decrease in affordability, in particular for those who are seeking to enter the market for the first time with higher prices meaning larger deposits, while at the same time, record-low interest rates mean that when saving these borrowers are getting no return on their savings.”
Record-low interest rates have driven the sharp rise in property prices, which Mr Kusher said had further increased borrowing capacities at a time when people have faced restrictions in how they can spend their money due to international travel bans.
“This, along with government stimulus in the form of HomeBuilder, has attracted more buyers to the housing market and bid up prices,” Mr Kusher explained.
The combination of these factors has led to higher prices and declining affordability for first-time buyers, he said.
Property prices have risen sharply across Australia, with new realestate.com.au data showing Sydney recorded the biggest jump in median house prices – up 15.8% to $1.1 million – among the capital cities, over the past year.
However, realestate.com.au economist Paul Ryan said market activity will pause during Sydney’s extended COVID-19 lockdown.
“Price growth will likely slow until the market gets back into full operation,” Mr Ryan said after the lockdown was extended by a further two weeks on Wednesday.
Higher prices are pushing up buyers’ budgets
Buyers have been searching for more expensive properties across Australia, with searches for properties listed for $1 million or more continuing to rise at the expense of those for less than $500,000.
In June, 39% of price-filtered searches nationally on realestate.com.au were for properties listed for at least $1 million, compared to 15.5% of searches for those under $500,000.
Mr Kusher said people are searching for what is available.
“There has been a significant reduction in the number of properties available for sale under $500,000,” he said.
“This in turn is pushing buyers to have to spend more on property.
“There’s no doubt in my mind if there was significantly more availability of properties priced under $500,000 – particularly in capital cities – there’d be significantly more buyers seeking them out.”
Mr Kusher said the lack of lower-priced properties was an issue in all cities but the problem was most acute in Sydney, Melbourne and Canberra.
“Each of these cities has seen less than 10% of all filtered searches for dwellings (houses and units) at a price point below $500,000 over the past year,” he said.
“Even though these are the markets with the smallest share of property searches under $500,000, there have been big declines pretty much across the board over the past year, highlighting the increase in prices and the dwindling supply of properties being listed for sale at prices below $500,000.”
Mr Kusher said while there are far fewer lower-priced properties in capital cities than in regional markets, there has been a significant reduction in the supply of lower-priced homes for sale in regional areas over the past year.
“This is a function of much more demand in regional markets and limited supply,” he explained.
“Because far fewer people live in regional areas, a large uplift in demand in these areas can have a much bigger impact on prices and that is what has played out over the past year.”
Searches for regional properties listed at or above $1 million have more than doubled over the past year, with the pandemic accelerating interest in a sea or tree change and driving a record movement of people from the capital cities to regional areas.
The latest REA Insights Housing Market Indicators Report showed 23.5% of price-filtered searches in non-capital city markets in June were for properties at or above $1 million, up from 11.9% a year earlier.
Mr Kusher said the share of realestate.com.au searches for properties with at least three bedrooms have increased in capital cities over the past year, to 66.9% in June, but declined slightly in regional markets to 73.4%.
“Certainly in capital cities I believe people are increasingly seeking larger homes while in regional areas I suspect that more investors moving into those markets has dragged the proportion of three-plus bedroom searches a little lower over the year,” he said.
Victorian buyer’s agent and Real Estate Buyers Agents Association of Australia president Cate Bakos said activity in the $1 million-plus price band had increased as COVID and working from home changed some buyers’ minimum requirements, including the number of bedrooms and having a study.
“A lot of people who could have been happy with something smaller and cheaper have upped their search criteria to bigger and three bedrooms, which has added significant expense to the wish list,” Ms Bakos said.
“There’s not a lot of three-bedroom properties under $500,000 and three bedrooms-plus are the flavour of the day at the moment.”
Mr Kusher said while buyers could choose more affordable property types such as units or townhouses, even those had become more expensive in most parts of the country and a unit was not an appropriate housing option for everyone.
Affordable first homes wane as prices jump
Mr Kusher said first-time buyers faced the biggest affordability challenge, although existing owners trying to buy again in the hot market also faced issues.
“The issue is if you have sold and are trying to re-buy, price growth is rapid, so the market may be moving away from you.”
According to realestate.com.au data for June, median sale prices for houses surged by a massive 15.8% over the past year in Sydney, taking its median house price to $1.1 million.
Hobart’s median house sale price shot up 14.7% to $585,000, Darwin recorded a 14% increase to $490,000, Canberra’s median price jumped 13.2% to $781,125 and Perth had a 10.3% increase to $520,000.
Median house prices rose by 9.6% to $523,000 in Adelaide, 9.5% to $810,000 in Melbourne and by 7.6% to $582,000 in Brisbane.
Most of the economists and experts surveyed by comparison site Finder agreed housing is becoming unaffordable for the average Australian, with many pointing to low wages growth and interest rates.
Head of consumer research at Finder Graham Cooke said in August and September last year, more than half of the surveyed economists were feeling positive about housing affordability, but that had nosedived to 3% in the most recent survey.
“For first-home buyers the bottom rung of the housing ladder is getting higher and higher off the ground,” Mr Cooke said.
“It’s a steeper and steeper step to get up to it.”
Mr Cooke noted the total amount of housing loans to owner-occupiers have been setting records for several months, with the latest Australian Bureau of Statistics data showing it hit a fresh high of $23.4 billion in May.
Economists at the big four banks expect property prices to surge by at least 10% and as much as 17% this year, before growth slows to a still-solid 5% or 6% in 2022 as affordability and other factors such as rises in fixed mortgage rates and likely action by regulators cool the market.
While two thirds of the experts and economists surveyed by Finder expected NSW property prices to peak in the second half of 2021, Mr Cooke said Sydney was predicted to record a 21% increase in prices this year.
“First-home buyers who are saving for a deposit are the ones who are most highly impacted because the numbers you need to save keep going up and up and you need a 20% deposit to avoid lenders mortgage insurance,” Mr Cooke said.
“If you want to buy somewhere in Sydney where the median house price is $1 million, that’s a significant saving required.”
Mr Cooke said if price growth slows as predicted next year, 2022 could be a much better year for housing affordability.
“It looks like this rate of price growth isn’t going to continue indefinitely,” he said.
“It seems to be towards the end of this year when economists are indicating it might start to slow down and maybe next year the saving requirement won’t be increasing as exponentially in front of people who are trying to save as previously.”
‘Despondent’ buyers adjusting their expectations
Ms Bakos said many buyers were feeling despondent about the pace of the market.
“I’m getting a lot of people who are looking at what prices were doing last year and they are despondent,” Ms Bakos said.
“A lot of people decided to wait it out because they were expecting a crash when JobKeeper came off and were hoping for some kind of easing when the end of the financial year hit, but we’re not seeing that because supply and demand is just so unbalanced.”
Ms Bakos said buyers were having to adjust their expectations and searching to take into account the sharp price rises, once they accepted the opportunity at the old price point was gone.
“They’ll either downgrade their expectations or they’ll start looking further afield or at a different price altogether,” she said.
“We’ve seen a lot of that – a complete pivot – whether it’s moving to a region, whether it’s accepting that a townhouse is in the budget or whether it’s moving to the next suburb out.”
“It is reasonable to expect competition for properties for sale will remain strong, pushing prices higher in markets where activity remains heightened despite the seasonal slowing.”