Falling property prices, higher interest rates on savings and rising wages have led to a shorter duration for couples to save up for an entry-level deposit in Australia.
According to Domain's annual First Home Buyer Report, first-home buyers’ time to save for a house deposit has fallen by up to 13 months.
Previously, rock-bottom interest rates favoured mortgage holders but made saving for a deposit longer. With the Reserve Bank of Australia's aggressive rate hiking cycles, first-home buyers are now facing less competition and softer prices, reshaping the affordability conversation.
All capital cities except Adelaide saw a decrease in the time required to save for a deposit on entry-level houses and units since last year.
The reduction in the time to save for entry-priced units ranged from two months in Perth and Darwin to eight months in Sydney and Melbourne.
The reduction in the time to save for entry-priced houses ranged from one month in Perth to 13 months in Sydney and Canberra.
The combination of declining property prices, greater interest rates on savings, and rising wages have resulted in a shorter duration for a couple to save up for an entry-level deposit in Australia.
In fact, the latest data from Domain's annual First Home Buyer Report revealed that first-home buyers’ time to save for a house deposit falls by up to 13 months.
Dr Nicola Powell, Domain’s Chief of Research and Economics said:
“A time machine has been offered to first-home buyers across Australia, as falling property prices in certain cities, higher interest rates accrued on savings and wage growth have aligned to reduce the time to save for an entry-priced property deposit.
Nationally, for a couple, it’s now become six months quicker for a first-home buyer to purchase an entry-priced house and two months quicker for an entry-priced unit since this time last year."
She further added:
“Previously, rock-bottom interest rates greatly benefited mortgage holders, making it cheaper to borrow and repay a home loan.
However, it was a key driver of property price growth, making time to save a deposit longer.
This narrative has flipped since the Reserve Bank of Australia embarked on one of the most aggressive rate hiking cycles in history, escalating the cash rate to over a decade high.
Now in 2023, first-home buyers are facing less competition and softer prices, reshaping the affordability conversation."
With the exception of Adelaide, all capital cities saw a decrease in the time required to save for a deposit on entry-level houses and units since last year.
In the case of houses, this decrease ranged from one month in Perth to 13 months in Sydney and Canberra, as shown in Table 1.
Table 1. The time to save for a 20% deposit on an entry-priced house for a couple aged 25-34.
|Area||Time to save|
|Pre-cash rate hikes
|A year ago
|5 years ago
|Sydney||6y 8m||8y 1m||7y 9m||6y 0m||6y 4m|
|Melbourne||5y 7m||6y 6m||6y 4m||5y 9m||5y 9m|
|Brisbane||4y 0m||5y 2m||4y 11m||4y 4m||4y 2m|
|Adelaide||4y 9m||4y 10m||4y 8m||3y 10m||3y 9m|
|Perth||3y 7m||3y 9m||3y 8m||3y 4m||3y 8m|
|Hobart||5y 8m||6y 1m||6y 0m||4y 3m||3y 6m|
|Darwin||3y 6m||4y 5m||4y 3m||3y 5m||3y 4m|
|Canberra||6y 0m||7y 2m||7y 1m||5y 0m||4y 10m|
|Combined capitals||5y 3m||6y 2m||6y 0m||4y 6m||4y 3m|
|Combined regionals||3y 10m||3y 11m||3y 10m||3y 3m||3y 2m|
|Australia||4y 11m||5y 7m||5y 5m||4y 2m||4y 0m|
|Source: Domain. y = year, m = month.|
For units, the reduction ranged from two months in Perth and Darwin to eight months in Sydney and Melbourne, as indicated in Table 2.
Table 2. How the time to save for a 20% deposit on an entry-priced unit for a couple aged 25-34 has changed.
|Time to save|
|A year ago
|5 years ago
|Sydney||4y 7m||5y 3m||5y 3m||5y 4m||5y 7m|
|Melbourne||3y 7m||4y 3m||4y 3m||4y 3m||4y 2m|
|Brisbane||3y 5m||3y 7m||3y 5m||3y 4m||3y 6m|
|Adelaide||3y 2m||3y 1m||3y 0m||2y 7m||2y 11m|
|Perth||2y 3m||2y 6m||2y 5m||2y 5m||2y 8m|
|Darwin||2y 6m||2y 9m||2y 8m||1y 11m||2y 4m|
|Canberra||3y 7m||3y 10m||3y 10m||3y 5m||3y 5m|
|Combined capitals||3y 9m||4y 1m||4 y 0m||3y 5m||3y 4m|
|Combined regionals||3y 1m||3y 3m||3y 1m||2y 10m||2y 10m|
|Australia||3y 7m||3y 10m||3y 9m||3y 3m||3y 2m|
|Source: Domain. y = year, m = month. Hobart is excluded due to a low volume of unit sales.|
Sydney remains the city with the lengthiest period required to save for an entry-priced house deposit, standing at six years and eight months, followed by Canberra at six years.
However, these cities have also experienced the most significant annual reduction in the time required to save for an entry-priced deposit, shortening by 13 months since last year.
As house prices in these more expensive cities have declined further from their peak levels, the impact of reducing the time needed to save has been more substantial for households.
When assessing housing affordability, it is important to not only consider property prices but also mortgage serviceability.
This is particularly relevant for first-home buyers, who typically rely on a mortgage to purchase a property.
Kareene Koh, General Manager and CEO of Domain Home Loans, said:
“Rising mortgage rates have negatively impacted the costs associated with a home loan.
The decline in prices has assisted buyers in shortening the time to save, but higher interest rates have seen the affordability of mortgage repayments deteriorate, adding a new level of complexity.
It’s a difficult time for market entrants, but there’s still some good news.
We’re seeing interest rates starting to stabilise providing a light at the end of the tunnel for the months to come.
For first-home buyers, it’s important to be across the numbers and use things like a digital mortgage calculator tool, to work out what strategies might suit your budget best.
Knowing your budget and familiarising yourself with the kinds of properties that sell below your maximum purchase price will ultimately be the key to determining where you can afford to buy."
As affordability remains a top concern for first-home buyers, they may need to make compromises in terms of property type, and location, or consider the emerging trend of rentvesting.
For those seeking to purchase an entry-priced property, opting for a unit instead of a house could significantly reduce the time needed to save for a deposit.
In fact, purchasing an entry-priced unit across the combined capitals could potentially enable buyers to enter the property market 18 months earlier than if they were to save for an entry-priced house.
Moreover, location can play a critical role in affordability, with properties situated further from the city generally offering better affordability.
On this, Dr Nicola Powell commented:
“It helps if a first-home buyer is flexible on the type of property and location they want.
A neighbouring suburb or a unit in your ideal area might offer much better value.
The decentralisation of our workforce has supercharged affordability for some with remote working bringing increased flexibility and greater housing choice.
In saying this, we know that not everyone is able to do this, with lower-income workers often needing to be close to their workplace as they are unable to work from home.
When navigating the first-home buyer’s market, considering property type and location, or even becoming a rentvestor, can all be worthwhile.
Government incentives can be advantageous in shaving off years to an entry-priced deposit such as the federal First Home Guarantee program which allows low-deposit purchases without mortgage insurance.
In NSW and some other states, first home buyers can also take advantage of shared equity schemes which reduce the upfront and ongoing costs of taking out a home loan.”