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Australian property market: ‘Finally hit the wall’

Home loan activity declined sharply over February, driven by the significant falls in affordability as a consequence of booming house prices.

The data released by Bluestone Home Loans revealed home affordability has “finally” steadied, with its mortgage affordability index coming in at 96.6 in February – the same result as the January quarter.

The higher the Home Loan Affordability Index number, the higher the proportion of average income required for the average home loan, and the lower the affordability.

The February 2022 quarter result represented a significant pause in runaway affordability compared to the 2.2 per cent rise reported over the January quarter, and followed three consecutive months of increases in the index reflecting recent sharply declining affordability. 

Despite a steady result over February, the index continued to track above the long-term average (87.1) over nine consecutive rolling quarters, with the current annual decline in affordability of 17 per cent – the highest reported since the series began in January 2010.


The report indicated the continued above-average index reflected the “clear prospect” of house price growth easing and home loan activity declining, evidence of which has been emerging

With the Reserve Bank of Australia (RBA) set to increase the cash rate, all eyes will be on the Australian Bureau of Statistics (ABS) today, Wednesday (27 April), as it releases the Consumer Price Index (CPI) for the March quarter 2022, providing an indication of Australia’s inflation rate.

Economists predict if inflation remains steady between 2-3 per cent, the RBA may raise the cash rate ahead of the upcoming election.

Property boom slows 

While Australia’s property growth has boomed in the last two years, strict lending conditions from financial institutions have also placed a ceiling on borrowing capacity, resulting in reduced demand and lower prices growth. 

Consultant economist at Bluestone Home Loans, Dr Andrew Wilson said the Australian property market has “finally hit the wall” in terms of affordability. 

“Without higher incomes or lower interest rates to drive prices higher, the house price boom is over, Mr Wilson said.

“Wages growth remains stubbornly low and last week the RBA finally signaled the prospect of rising interest rates.

Mr Wilson said indicators showed “runaway affordability” is set to plateau. 

“Disruptions from covid lockdowns muddied the waters in late 2021 but with pent-up demand now largely satisfied, the dynamics of the housing market are now returning to normal,” Mr Wilson said.

“The fundamental drivers of the market are: record prices impacting affordability, subdued income growth, lengthy holiday and election distractions, stricter lending conditions from financial institutions and the prospect of increasing interest rates. These all combine to sideline buyers and result in reduced demand and lower prices growth.”

Fears of housing crash overstated

While affordability remains a real concern, fears over a housing market crash are “completely overdone”, Mr Wilson said. 

“The easing of covid restrictions and concerns, a reviving national economy, the imminent return of mass migration and the significant stimulus policies introduced for first home buyers in the Budget will support solid home lending through 2022,” he said.

“And while interest rate increases make for great headlines, there’s no reason for Australian home owners to panic.

“Full employment, a near-record household savings rate and extremely high levels of home equity after the price boom of the last 18 months mean that few Australian households are likely to experience mortgage stress in the near future.”

[Related: RBA will hike by 40 bps in June: Westpac]

Australian property market: ‘Finally hit the wall’

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