First home buyers feeling the pinch from higher prices

Home loan affordability for first home buyers continues to track at low levels, reflecting the ongoing impact of high and rising home prices.

The latest results for the February quarter from the My Housing Market First Home Buyer Home Loan Affordability Index however reveal a slight improvement in national affordability.

The My Housing Market First Home Buyer Home Loan Affordability Index measures the proportion of the average income required for the average first home buyer home loan repayment and is derived from ABS statistics.

The higher the Index value the less affordable first home buyer home loan repayments.

The Index is a robust forward indicator of first home buyer home loan activity.

The national First Home Buyer Home Loan Affordability Index fell marginally by 0.2% over the February quarter but remained 10.0% higher than recorded over the February quarter of 2021.

The recent sharp deterioration in home loan affordability has coincided with an equally steep decline in national first home buyer lending that has fallen by 31.1% since the near-record peak recorded over the March quarter of 2021.

NSW and VIC recorded slight improvements in affordability over the quarter with local Index results each down by 0.2%.

Affordability however in those states has fallen sharply over the past year, down by 14.7% and 10.2% respectively.

Other states continued to report declining affordability over the February quarter with higher local index results.

ACT recorded the highest affordability decline rising by 2.9% followed by WA up 1.5% and NT higher by 1.3%. NSW recorded the highest average first home loan over the February quarter at $592,107 followed by ACT at $531,956 and VIC at $502,478.

NSW remains the least affordable state for first home buyers according to the First Home Buyer Relative Affordability Index currently 23.4% higher than the national benchmark.

Although first home buyer loan affordability has deteriorated over the past year, the recent announcement by the government of significant extensions to national first home buyer support policies - particularly the popular First Home Buyer Deposit Scheme, will act to improve affordability for this group.

The significant easing of recent strong home prices growth - particularly in Sydney and Melbourne, is also unequivocally good news for first home buyers.

About Dr. Andrew Wilson Dr Andrew Wilson, Chief Economist of www.MyHousingMarket.com.au is widely regarded as Australia’s leading property economist.