THIS map is a homebuyer’s worst nightmare.
It is no secret that housing affordability in many parts of Australia absolutely sucks, especially in Sydney. And it looks like it’s getting worse.
Since 2009, house prices in the Harbour City have almost doubled, rising by 97.5 per cent, according to CoreLogic data. In 2016 alone, Sydney property prices jumped 15.5 per cent.
“Sydneysiders saw dwelling values increase by approximately $10,000 per month over the past year, creating a significant boost in wealth for homeowners; at the same time we’ve seen mounting affordability challenges for aspiring homeowners,” CoreLogic head of research Tim Lawless said.
But new graphs released by the data company show in graphic detail just how hot the property market has been and how many areas have been affected.
The number of Sydney suburbs where house prices are now at least seven figures is astonishing and depressing. Graph: CoreLogic. The red in the graph illustrates suburbs where the median house price is $1 million or above. In December 2011, the red was concentrated in those suburbs within 10km or 20km of the CBD, as you would expect.
Six years ago, only two suburbs outside of a 50km radius of the CBD had median prices of at least seven figures. Most of the graph is coloured bright green or pale green, indicating median house prices of a substantially more acceptable $300,000 to $500,000.
Juxtapose that against December 2016 and the realisation is terrifying. Red is the dominate colour and many suburbs more than 50km from the city have crept into the red zone.
Those green suburbs with homes of $500,000 or less are almost exclusively located in fringe suburbs more than 50km from Sydney’s centre.
Not depressing enough? Buying an apartment isn’t necessarily that affordable now either. In this graph, which compares house prices to apartment prices in Sydney, it shows a considerable number of suburbs more than 10km from the CBD that now have apartment median prices of $1 million or more.
Even the number of suburbs where apartments are reaching $1 million is astonishing. Graph: CoreLogic.
Some suburbs more than 20km outside of the city centre even have apartments with price tags of at least seven figures. In fact, buying an apartment in 2016 doesn’t look dissimilar to buying a house in 2011 — and that’s just a difference of a bit over five years.
Another recent CoreLogic report put Sydney house prices at a whopping 8.3 times higher than annual household incomes and found households were dedicating an average of 44.5 per cent of their income to service a mortgage.
Broadly, a homeowner is considered to be under “mortgage stress” if they have to devote more than 30 per cent of their household income to repayments. So Sydneysiders are paying 1.5 times the amount already considered as being under “mortgage stress”.
But even being able to pay a mortgage on a Sydney home is a luxury, considering high prices are locking people out altogether as they struggle to save the deposit. To secure a mortgage and avoid Lenders Mortgage Insurance (LMI) you need to save a 20 per cent deposit.
This means, according to a recent Bankwest report, the average Sydney couple faces a gruelling 8.4 years of saving to front the deposit on a median-priced home.
Nationally, the average Australian couple spent 4.4 years saving up for a 20 per cent deposit to buy a median-priced house in 2016.
It isn’t just a Sydney problem either, albeit it is the worst in the New South Wales capital. In Melbourne, where house prices rose 13.7 per cent in 2016, prices have increased by a mammoth 83.5 per cent since 2009.
And when it comes to saving a deposit, Melburnian couples aren’t far behind Sydney. They are scrimping and saving for an average of 6.2 years to afford a deposit on a median priced home.
Even house prices in our nation’s humble capital of Canberra have risen by a third (32.6 per cent) post GFC, and 9.3 per cent over the past 12 months.
PRICES TO RISE FURTHER
There has been plenty of debate about the future of Australia’s house prices, particularly in notoriously hot Sydney and Melbourne, and whether it is time for some reprieve. What goes up must come down, right?
Monthly CoreLogic data has shown the rate of growth is easing. The annual rate of capital growth in Sydney, for example, has eased to 15.5 per cent as at December 2016 from its cyclical high of 18.4 per cent annual growth recorded at the end of July 2015.
However, according to research from HSBC released this month, Sydney and Melbourne house prices will rise “solidly” again in 2017.
The bank’s view is that capital city house prices will rise a further 3.4 per cent in 2017 before easing to 1.7 per cent in 2018. And this is in a year in which it expects the Reserve Bank to lift interest rates by 50 basis points to a 2 per cent cash rate.
But while house price growth will remain strong in 2017, HSBC chief economist Paul Bloxham noted the housing construction boom was “now near its peak” with significant falls in building approvals in recent months indicating an impending downturn.
He said we can expect construction will start to drop in late 2017.
“Like ships passing each other in the night, we expect housing construction to start falling around the time that mining investment stops its decline,” Mr Bloxham wrote.
“Australia’s investment outlook is then expected to be supported by mine maintenance and repair, infrastructure investment and the business investment needed to support services exports, such as tourism and education — Australia’s next growth engine.”
HSBC’s forecasting says investment in housing will serve a positive contribution to Australia’s GDP in 2017, with a predicted 4.4 per cent in the year — following a 9 per cent gain in 2016 — but will then fall 5.7 per cent in 2018.
ENDANGERED FIRST HOME BUYERS
So perhaps the collective complaint from millennials that it is much harder to get on the property ladder now than ever before shouldn’t be dismissed so quickly by their Baby Boomer parents as nothing more than a whinge.
According to the latest edition of the Adelaide Bank and Real Estate Institute of Australia (REIA) Housing Affordability Report, released in December, the average loan size to first home buyers increased by 1.5 per cent over the September quarter, to $319,633, thanks to ever-rising house prices.
First home buyers now make up just 13.2 per cent of the owner-occupier market nationally. This is the lowest representation since the Australian Bureau of Statistics (ABS) series was commenced in June 1991 and compares to the long-run average of 18.5 per cent.
All states and territories but two — Queensland and the Northern Territory — recorded decreases in first home buyers over the September quarter 2016.
Speaking of the results, Damian Percy, general manager of Adelaide Bank, likened this dwindling group of buyers to an endangered animal.
“The number of Australian first home buyers decreased by 6.7 per cent during the quarter, to 21,825 — a decline of 5.8 per cent compared to the September quarter 2015. To give this some sense of perspective, the number of first home buyers for the quarter has dwindled to a figure now equivalent to the number of lions believed to be left in the wild,” he said.
And it’s a group of lions which desperately needs to be saved from a bleak future.
“Home ownership is the third leg of the stool — along with superannuation and affordable healthcare — that enables people to enjoy a secure and dignified retirement. It is to be hoped that real solutions will emerge to the affordability issue from this gathering of treasurers, and not just agreeance to keep having more meetings.”
The rest of CoreLogic’s report, which graphs Australia’s other capital cities, will be released in the full report later this month.