Australian Housing Market Faces Affordability Challenges Despite Rate Cuts
Australian Housing Market Faces Affordability Challenges Despite Rate Cuts
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At the close of 2024, Cotality, the company formerly known as CoreLogic, reported that both the national dwelling value to income ratio and the income percentage needed for a new mortgage hit unprecedented highs.
According to Cotality's housing report for July, the median dwelling value in Australia's capital cities was $926,854.
Sydney and Brisbane, with median values of $1,228,435 and $934,623, respectively, were noted as the most expensive markets, reflecting impressive growth over the past five years.
Interestingly, analysis from the Australian Financial Review revealed that Australia's dwelling values typically see a substantial increase two years following the onset of an interest rate reduction cycle by the Reserve Bank of Australia (RBA). Tim Lawless, Cotality Australia's Research Director, highlights that while rate cuts offer positive momentum for housing markets by enhancing borrowing capacity and loan serviceability, the issue of affordability may limit market expansion.
Lawless remarks that even though interest rates have decreased, they have done so from a relatively high base, with monetary policy still skewed towards restrictive levels. He explains that even if rates fall further, the cash rate would approach neutral levels, comparable to a decade average of 2.55% pre-pandemic. Consequently, while the housing market might react positively to the recent rate cut, constrained affordability and stringent lending standards are expected to moderate any significant market surge.
Alongside anticipated rate reductions, Australian governments have initiated several demand-boosting measures like the Albanese government's 5% deposit scheme for first-time buyers and expanded Help-to-Buy shared equity plans. State-specific policies, such as Queensland's new shared equity initiative, also aim to fuel demand.
Lawless warns, in line with Australian Financial Review's predictions, that home values could climb by up to 13% by 2026, pushing the median housing value relative to incomes from 8.0 times to 8.4 times the median household income. This trend indicates a structural shift towards less affordable homeownership across the nation.
Moreover, rental affordability continues to decline as population-driven demand, powered by immigration, consistently surpasses supply. Consequently, the outlook for Australian tenants and first-time homebuyers remains challenging, with slow price appreciation marginally easing affordability concerns.
Published:Tuesday, 19th Aug 2025 Source: Paige Estritori
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"Mastering Home Loans: Navigating the Australian Mortgage Market"
