The declining housing market, rising wages and higher interest rates on savings accounts have slashed months of the time it takes to save a deposit for a first home.
While higher mortgage rates and inflation are weighing on borrowability — and therefore home prices — domain analysis shows that rising interest rates on savings accounts and higher salary packages have reduced the time it takes to save for an entry-level home in all major cities except Adelheid.
Saving up a capital contribution remains one of the main barriers to home ownership.
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The impact of these factors for first-time homebuyers is that the deposit savings time required to purchase the standard entry-level home is reduced by six months compared to this time last year.
For shares, the environment of higher inflation and interest rates has shortened the savings period by two months.
Sydney and Canberra saw the most dramatic reductions in the time it takes to save a deposit, shortening the typical savings period by 13 months.
But despite cutting the time it takes for a couple aged 25 to 34 to save a 20 percent down payment on a home at entry-level price by more than a year, the average young couple would still be six years and eight It takes months to save for a home in Sydney.
In Canberra it would take six years.
Darwin has the shortest lead time of any capital at three years and six months, followed by Perth at three years and seven months.
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Across regions, it takes an average of three years and 10 months to save a home.
Domain chief of research and economics Nicola Powell said the low interest rates made it cheaper to borrow and pay back, but these low interest rates led to extreme growth in house prices.
That narrative has changed since the Reserve Bank began aggressively raising interest rates last year to counter rising inflation.
“Now, in 2023, first-time home buyers are facing less competition and lower prices, which is reshaping the affordability conversation,” said Dr. Powell.
While rising interest rates have reduced the time it takes to accumulate a deposit, they have also increased the cost of servicing a loan, complicating the affordability picture.
Also, the housing downturn may have bottomed out as CoreLogic data shows stabilization in average prices in February, which has evolved into price gains in several cities in March.
Signs that the Reserve Bank is nearing the peak of its rate-hike cycle could support a rebound in house prices, along with the expected recovery in migration, tight rental markets and low rents.
Minutes of the RBA’s March meeting, due to be released on Tuesday, are likely to provide some guidance for future interest rate decisions after recent messages have softened in tone.
The RBA hiked rates another 25 basis points to 3.6 percent at its last meeting.
© AAP 2023
