Affordability declines in Perth

While it remains one of Australia's most affordable cities, rate increases are impacting Perth home buyers

Affordability declines in Perth

Western Australia retained its position as Australia's most affordable state for home buyers in the June quarter, according to the Real Estate Institute of Western Australia’s latest Housing Affordability Report. However, it was beaten to the overall title by the two territories, the Northern Territory, and the Australian Capital Territory.

In WA, the proportion of family income required to meet loan repayments increased by 0.4 percentage points to 35% over the quarter, marking a significant increase of 6.8 percentage points over the year, REIWA reported. This calculation is based on a median weekly family income of $2,504 and an average monthly loan repayment of $3,801.

The Northern Territory and the Australian Capital Territory were the only markets more affordable than WA, with affordability rates of 34.4% and 34.8%, respectively.

REIWA CEO Cath Hart attributed the decline in affordability in WA to interest rate increases rather than any significant increase in property prices.

“Average mortgage payments have increased about 48% since rates started rising. This makes a significant difference to people’s budgets and borrowing power,” Hart said. “And while this is a challenge, WA’s higher-than-average incomes and lower-than-average mortgages mean the market has been able to adjust.”

While the median house price in Perth rose moderately by 5.5% over the year to June, the median unit price decreased by 2.9%.

Buyers in the region have shown a strong interest in more affordable suburbs, as evidenced by the top 10 fastest-selling suburbs being well below the Perth median house price in the year to June, REIWA reported. This represents a significant shift from the previous year, where all the suburbs in the top 10 were priced above the Perth median house price, demonstrating the impact of rising interest rates on buyer behaviour.

Nationally, rising interest rates posed challenges for homeowners, with affordability declining in all states except Victoria. The proportion of family income required to service loan repayments stood at 45.9%, marking a 2% increase over the quarter and a significant 19.2% increase in the 12 months leading up to June. This level of affordability was the lowest recorded since the Global Financial Crisis (GFC) era of 2008.

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New South Wales had the lowest housing affordability, with 56% of family income required to meet loan repayments, while Victoria ranked as the second least affordable state for home buyers at 45.6%.

In WA, the average loan size in the June quarter was $471,274, representing a decrease of 1.5% compared to the March quarter and a decline of 0.4% annually. WA's average loan size was 23.8% lower than the national average of $583,289. Meanwhile, the median weekly family income in WA was higher ($2,504) than the national median ($2,363), while the average monthly loan repayment was lower at $3,801 compared to the national average of $4,705.

Despite the decrease in affordability, the number of loans in WA increased by 9.7% to 10,085 in the June quarter, REIWA reported. However, this figure was 13.5% lower than the same time last year. WA also remained the most affordable state for first-home buyers, with the lowest average loan size of $401,683, which rose 0.5% over the quarter and 3.6% annually. The number of loans to first-home buyers in WA increased by 7.9% to 3,565 over the three months leading up to June, accounting for 35.3% of the state's owner-occupier market. However, this figure represented a decrease of 16.6% over the year.

Rental affordability

In terms of rental affordability, WA experienced a decline over the quarter and year. The proportion of family income required to meet median rent payments increased by 1.1 percentage points to 22% in the three months leading up to June, reflecting an overall increase of 2.2 percentage points over the year. This decrease in rental affordability in WA was the largest nationwide, while two states and both territories saw slight improvements in affordability.

Hart said that the rental market in WA remains challenging, with further increases likely.

“WA recorded the strongest population growth rate in the year to June; this is having a strong impact on the rental market,” she said. “While members are reporting a lot of activity from Eastern States investors and builders are reporting increasing completions, supply can’t keep up with demand.

“Unfortunately, the green shoots we saw towards the end of the financial year didn’t bear fruit and under current conditions we expect the vacancy rate to tighten towards the end of the year,” she said. “This will maintain pressure on rent prices.”

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