Home prices are continuing to plunge on the back of the fastest surge in interest rates since the early 1990s. So far national average property prices are down 6.9% from their high and average capital city home prices are down 7.5% both over seven months. This is the fastest pace of decline on CoreLogic records going back to 1980.
Since April the amount an average new buyer can afford to pay has dropped by roughly 25% from around $600,000 to around $450,000. The combination of the surge in interest rates and still sky high home prices relative to incomes, which necessitate very high debt levels, means affordability is almost as bad as it's ever been.
In terms of financial stress, with the 2.85% cash rate household interest payments as a share of income are already estimated to be at a near nine year high. Given record debt levels, further increases in mortgage rates will start to push total mortgage payments (principal and interest) to record highs relative to household income.
On the upside several factors will help put a floor under prices and eventually drive a recovery. These include: government support programs (eg, home deposit schemes, “Help to Buy” schemes and NSW first home buyers swapping stamp duty for land tax); the tight rental market; & rapidly rising immigration. But for now, the property market will be dominated by higher rates. The last two major upswings in property prices that started in 2012 and 2019 required rate cuts before prices started to rise. Right now, we don’t anticipate rate cuts to start until late next year or early 2024, so we still have a while to go before we see any improvement.
If you are struggling with budgeting due to the current rate rises, please contact your financial adviser to organise a meeting to discuss how we can help.