Owner occupier loans plummet as housing affordability declines

According to the latest Real Estate Institute of Australia (REIA) Housing Affordability Report, the proportion of income required to meet the average loan repayment has increased 3.8 per percentage points to 42.2 per cent in the September quarter 2022.

REIA’s report revealed the number of owner occupied dwelling loans decreased 9.4 per cent in the September quarter, or 21 per cent over the past 12 months, which marked the highest annual decrease in new loans since December 2010.

The number of loans for owner occupied dwellings decreased in all states and territories over the September quarter except in the Northern Territory where it increased 2.3 per cent.

The report also found the number of first home buyers decreased to 26,343, a drop of 9.6 per cent during the quarter and a decrease of 30.3 per cent compared to the same quarter the previous year.

REIA’s president Hayden Groves said the cohort now makes 30.9 per cent of owner occupier commitments, a decrease of 0.1 percentage point over the quarter and 4.2 percentage points over the year.

“The number of first home buyers decreased in all states and territories except Tasmania and the Northern Territory, where there was an increase,” he said.

The figures take into account the Reserve Bank of Australia’s fifth cash rate hikes in September (2.35 per cent), which has since lifted to 3.1 per cent signaling a worsening effect is yet to be seen.

According to Mr Groves, the average loan size to first home buyers decreased to $479,125, a “marginal” decrease of 0.1 per cent over the quarter but an increase of 4.4 per cent over the past twelve months.

Looking across the states, the average loan size to first home buyers increased in New South Wales (0.3 per cent), South Australia (4.4 per cent), 2.2 per cent in Western Australia and 6.2 per cent in Tasmania.

The average loan size fell in Victoria (1.2 per cent), Queensland by 0.6 per cent, the Northern Territory (1.7 per cent) and 1 per cent in the ACT.

Housing affordability refers to the relationship between expenditure on housing, such as prices, mortgage payments or rents and household incomes, as compared to affordable housing, such as low-income or social housing.

Thus, given the sharp increase in the cash rate this year, alongside relatively stagnant wages growth, the issue of declining housing affordability may come as little surprise.

REIA’s report showed housing affordability declined in all states and territories, with Tasmania having the highest decline with the proportion of income increasing 5.9 per cent points and Western Australia having the lowest decline with proportion of income increasing 3.2 percentage points.

The report also found rental affordability declined less than housing affordability with the proportion of income required to meet median rent increasing by 0.1 percentage points to 23 per cent.

In fact, rental affordability improved in NSW and the ACT and remained stable in South Australia and Western Australia, but declining in all other states and territories.

It follows recent data estimated 22.6 per cent of mortgage holders (1,013,000) were ‘At Risk’ of ‘mortgage stress’ in the three months to October 2022, up from 21.1 per cent last month.

[Related: Mortgagors at risk of mortgage stress: Roy Morgan]