Value-to-income ratio rises to 7.0

Entering the property market and repaying a mortgage remain challenging, according to the latest CoreLogic Housing Affordability Report.

In the fourth quarter of 2023, the national value-to-income ratio was 7.0, based on the ratio of the average property price to the average gross household income. That compared to a ratio of 6.9 in the third quarter of 2023. The highest ratio was the 8.6 recorded in the first quarter of 2022, while the long-term average is 5.9.

CoreLogic also found the time to save a 20% deposit was 9.3 years, compared to 9.2 years the previous quarter, a peak of 11.5 years in 2022 and a long-term average of 7.9 years.

Meanwhile, mortgage repayments as a percentage of gross average household income were 49%, which was consistent with the range of 49-52% that has existed since 2022, but well above the long-term average of 37%.


Affordability unlikely to change much in the foreseeable future

CoreLogic said that, over the next few years, stretched housing affordability was likely to be a natural handbrake on the rate of property price growth, and that prices would conceivably rise roughly in line with incomes. In that case, affordability wouldn't necessarily improve but probably wouldn't worsen either.

“To be fair, mortgage rates are likely to drift lower over a one-to-two-year horizon (maybe beginning in the second half of this year), which may throw that delicate balance between prices and incomes off course a little, pushing up measures such as the value-to-income ratio. However, when it comes to actually servicing debt, lower mortgage rates would obviously be beneficial for affordability,” CoreLogic said.

“Finally, caps on debt-to-income ratios loom from the middle of this year. As has been widely discussed, they probably won’t have any effect straightaway, and they might not prevent cyclicality for house prices altogether. But over the medium term, they should tie prices more closely to incomes (regardless of mortgage rate changes), helping keep some kind of lid on affordability. The ultimate goal, of course, always needs to be a rate of new housing supply that matches demand.”

In this kind of challenging market, your clients could really benefit from the support of a trusted mortgage adviser. If you know anyone who’s looking to buy, I can explain their options, calculate their borrowing capacity, compare home loans and manage their mortgage application.



Published: 2/3/2024