It’s becoming even tougher to be a first home buyer, with a new report indicating that they will have to save even harder than before.
Nationally, first time buyers are being forced to save for longer as the median value of houses outpaces salary growth.
On average, Australian first time buyers will now take 4.1 years to save a 20 per cent deposit for a house, up from 3.9 years in 2013.
The sixth annual Bankwest First Time Buyer Deposit Report, the latest instalment from Bankwest’s Financial Indicator Series, has revealed the median value for houses has grown by 7.1 per cent to $469,000 in 2014 from $438,000 in 2013.
The deposit needed to purchase a median priced property has reached $93,800, up from $87,600 in 2013.
Growth in housing prices attributed to low interest rates and high levels of investor activity
Despite a significant increase in the median price of housing across Australia, wages amongst first time buyers have only grown by 2.6 per cent over the year, leaving first home saver incomes lagging behind rising house prices.
Ian Rakhit, Bankwest Head of Specialist Banking, had this to say:
“This year’s report reveals an ongoing and increasing trend in the amount of time it takes to save for a first home in Australia,”
“At the same time, those who are in a position to join the property ladder this year will do so at a time when the average price of houses is showing strong growth. If the current trend continues, these buyers may see an increase in the value of their property year-on-year.”
A large part of the growth in housing prices can be attributed to low interest rates, with standard variable rates currently at the lowest level since 2009.
The current average rate of 5.9 per cent per annum is well below the average rate of 7.3 per cent seen over the past 10 years.
While low interest rates may make it easier for home owners to service their loans, they can also make it more difficult for first time home buyers to save for a first home deposit.
For a couple saving their money in a high interest online savings account, the average interest rate has been 2.5 per cent over the past 12 months, down from 3.17 per cent in 2013, and the average rate of 4.69 per cent over the past 10 years.
Additionally, investors comprised 47.1 per cent of all home loans over the last 12 months, up from an average of 42.0 per cent over the past 10 years, generating higher levels of demand in the housing market which pushes prices up.
Investor activity has been particularly concentrated in New South Wales and Victoria; in New South Wales alone, investor loan approvals have increased by about 90 per cent over the past two years.
“Certainly, today’s low interest rates make home loans more serviceable for young home owners.
But for most, saving a deposit for their first home remains the biggest challenge.
While interest rates are low, it’s important to develop a tailored plan that will make the most of your savings each month.
We encourage those planning to purchase their first home to shop around to find the best savings plan for their needs.”
State by State
First time home buyers in New South Wales must wait the longest before they can own their own home, with a couple on an average income taking 4.8 years to save the $112,700 required for a home deposit, up from 4.4 years in 2013.
Victoria has the next longest savings time at 4.4 years, followed by the Northern Territory (4.1 years) and the ACT (4.0 years).
The shortest savings times by state are in Tasmania, where it would take 2.7 years for a couple to save a home deposit, and South Australia where it would take 3.3 years.
Compared to the average saving time of 4.4 years in the nation’s capital cities, saving times in Sydney are much higher.
It would now take a couple 6.7 years to save the $165,100 for a deposit on a median priced home in Sydney, up from 5.9 years in 2013.
Sydney also saw the largest year-on-year median house price increase of all capital cities.
These factors coincide with a continued decline in first time home buyers numbers in New South Wales.
Melburnians have also experienced an increase in savings times, with first time home buyers now taking 5.5 years to save for a home, up from 5.2 years in 2013.
The number of first time home buyers in Melbourne has also dropped dramatically, falling by 25.8 per cent, which could be attributed to changes to the First Home Owner Grant, which came into effect in July 2013.
Is anywhere still affordable?
The most affordable capital city is Hobart, where couples could afford a deposit for a median priced home after 3.3 years of saving.
“Last year, we observed a slump in first home buyer activity in Queensland and Western Australia following changes to their respective First Home Owner Grant schemes. We have witnessed a similar pattern emerging in Victoria in 2014.”
The study revealed regional areas remain Australia’s first time buyers’ most affordable option, with 30 per cent (97 out of 321) of local government areas (LGAs) requiring less than two years saving for a deposit.
A further 62 per cent of LGAs require between two and four years to save for a deposit.
Only 7 per cent take more than four years for a couple to save for a deposit.
“The good news is there is still affordable housing available across the nation. Many first home buyers are starting to look further afield – for some, the more affordable housing offered by regional local government areas makes them a more attractive alternative compared to capital cities.”
Overall, the downward trend in the number of first time home buyers continued this year, with 80,018 buying their first home in the 12 months to June 2014, down 11.6 per cent from 90,553 in 2013.
The current rate of first home purchases is also significantly lower than the same point five years ago, when there were 162,679 first time home buyers in the year to June 2009.
“A high rate of first home purchases in 2009 can in part be attributed to the fact that First Home Owner Grants were doubled in some states in 2008 and 2009,” Mr Rakhit said. “Looking at a longer time-frame, the annual number first time home buyers is comparable to the same period in 2004.”
Additional key findings
- There are now 20 local government areas across Australia where first time home buyers would need to save a combined 20 per cent of their income for more than 10 years to afford a home deposit.
- Peppermint Grove in Western Australian remains Australia’s least affordable local government area, with couples needing to save for 21.5 years for the $769,000 20 per cent deposit required for a median priced home in this area.
- Perth and other areas in Western Australia remain relatively affordable in contrast to Sydney and Melbourne. This is reflected by growth in the number of first time home buyers numbers in Western Australia, and the opposite in New South Wales and Victoria.
- The average time taken to save for a unit across Australian capital cities is 3.3 years, up marginally from 3.2 years in 2013, and 1.1 years faster than the time required to save for a house in Australian capital cities.
Part of Bankwest’s Financial Indicator Series, the sixth annual Bankwest First Time Buyer Deposit Report tracks the time it would take for first time buyers to save a deposit in 465 local government areas (LGAs) across Australia over the five years to June 2014.
The report quantifies how long it would take a first time buyer to save a 20 per cent deposit based on local incomes and local house prices and the level of the First Home Owners Grant where available by state.
Data has been sourced from the Australian Bureau of Statistics (ABS) Wage and Salary Earner Statistics for Small Areas, the ABS Wage Price Index, the Reserve Bank of Australia (RBA) and Residex.
Deposit savings times have been calculated on the basis of a first time buyer couple setting aside 20 per cent of their combined pre-tax income annually.
The calculation assumes the savings are deposited into an online savings account each month and earn interest on this basis.
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.