The real estate market crash, boosted wages, and higher interest rates on savings accounts have shaved months off the time it takes to put together a deposit on the first home.
While higher mortgage rates and inflation affect borrowing capacity – and therefore house prices – domain analysis shows that improved interest rates on savings accounts and higher wage packages have reduced the time it takes to save for an entry-price home in every capital except Adelaide.
Providing a lump sum deposit remains one of the major barriers to home ownership.
The impact of these factors on the first home buyer is to erase six months of the deposit saving period needed to purchase a standard entry level home compared to this time last year.
For units, the environment of rising inflation and interest rates has reduced the savings period by two months.
Sydney and Canberra saw the most dramatic declines in time to save a deposit, shaving 13 months off the typical savings period.
But despite slashing more than a year from the time it takes a couple aged between 25 and 34 to save up a 20 per cent deposit on an entry-price house, it will take the average couple six years and eight months to save up for a home in Sydney. .
In Canberra, it would take six years.
Darwin has the shortest lead time of any capital city, at three years and six months, followed by Perth at three years and seven months.
Across regions, it takes an average of three years and 10 months to save a home.
Very low interest rates made borrowing and repaying a loan cheaper, said Nicola Powell, head of research and economics, but these low rates led to sharp growth in real estate prices.
That narrative has changed since the Reserve Bank began aggressively raising interest rates last year to counter rising inflation.
“Now in 2023, first-home buyers are facing less competition and softer prices, which is reshaping the affordability conversation,” said Dr. Powell.
While higher interest rates have cut the time needed to provide a deposit, they have also raised the cost of servicing a loan, complicating the affordability picture.
In addition, the downturn in real estate may have found a low point, as CoreLogic data revealed a stabilization in average prices in February that developed into price gains in many cities in March.
Signs that the Reserve Bank is nearing the top of the rate hike cycle may support a rebound in home prices, along with an expected rebound in immigration, tight rental markets, and lower rental listing rates.
The minutes of the RBA’s March meeting, which will be released on Tuesday, are likely to provide some hints for future interest rate decisions after softening the tone in recent communications.
The Reserve Bank of Australia raised interest rates by another 25 basis points to 3.6 per cent at its latest meeting.
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