Households across major Australian cities face mounting financial pressure as they struggle to meet the rising cost of buying a home, despite declines in property values, according to new research from Cotality. In just six months, a family seeking to purchase a typical house would need a substantial pay rise, often several thousand dollars, to qualify for a mortgage, even though the property itself is now cheaper. The findings underscore the ongoing challenge of affordability in the housing market, driven largely by sustained high-interest rates and shifting financial conditions. In Melbourne, the median house priced at $936,528 required a household income of $105,663 in July, up from $103,877 in January. This represents an increase of $1,786, highlighting the persistent strain on potential buyers. Similarly, in Sydney, the median house valued at $1,529,308 now demands an income of $172,543, up from $170,166 in January. These figures assume a 20% deposit, a 30-year loan term, and borrowing at interest rates that rose from 5.5% in January to 6.25% in May. With other household expenses accounting for 30% of total income, the burden of meeting mortgage repayments continues to grow. The Reserve Bank of Australia (RBA) maintained its cash rate at 4.35% on Tuesday, citing continued downward trends in housing prices in some capital cities and a noticeable decline in new housing loans. Cotality's head of research, Gerard Burg, emphasized that although home values have decreased, the overall affordability situation has worsened due to elevated interest rates. He noted that three consecutive rate hikes in 2026, February, March, and May, have significantly impacted purchasing power, particularly in markets such as Sydney and Melbourne, where home values have fallen by 1.4% and 1.2%, respectively. Other cities show varying degrees of price movement. Brisbane saw a slight decline of 0.6%, while Adelaide experienced a smaller drop of 0.2%. Notably, Perth recorded a marginal increase of 0.1% in home values. However, the financial implications remain consistent across many regions. For instance, in Brisbane, buyers would need an additional $14,228 annually to afford the median house priced at $1,207,039. In Perth, the required income for a median house valued at $1,073,500 has climbed by $13,788 since January. Burg explained that the affordability issue extends beyond the initial price of a home. “It is also the finance conditions that can have an impact,” he said. “There has been in a lot of places a bit of a risk bias… where people have been talking about the budget as [the reason] why we’re seeing these pullbacks.” He stressed that the data underscores the enduring nature of affordability challenges, even as property values adjust. Canstar’s director of data insights, Sally Tindall, pointed out that the drop in house prices has not sufficiently offset broader cost-of-living pressures. She highlighted that three rate hikes in 2026 have reduced the maximum borrowing capacity for a single, average, full-time income earner by $35,000 and for couples by $70,000. “While this is not going to impact everyone, it really impacts people who were planning to buy and borrow or take out a loan at or near capacity,” she said. Many individuals are finding that their home-buying budgets have shrunk more than the value of houses themselves, leaving them without relief. Meanwhile, Commonwealth Bank CEO Matt Comyn expressed cautious optimism about a potential rebound in the property market once expectations of lower interest rates materialize. He noted that mortgage applications had dropped 15% since the May budget, primarily due to tighter restrictions on property investor tax breaks. While applications have stabilized recently, Comyn believes a surge in demand could follow if rates begin to ease. He acknowledged that house prices peaked in March and have since fallen by approximately 2.5%, but he cautioned that forecasts vary widely among experts. The RBA has raised the cash rate three times this year, bringing it to 4.35%, and economists remain divided on whether rates have reached their peak. CBA economists predict that the central bank will maintain current rates through the remainder of 2026 and anticipate two rate cuts in 2027. Comyn’s comments come amid reports of a 15% drop in mortgage lending since the budget, alongside a sharp decline in investor loans. The bank also reported a 7% increase in cash net profit after tax, driven by growth in core areas such as home loans, business loans, and consumer lending. However, the slowing housing market and rising costs continue to weigh heavily on both borrowers and lenders alike.
★
Keep the news honest.
ObjectiveNews is reader-funded and ad-free — we show you the bias instead of hiding it. Support independent journalism for €4/month.
Become a Supporter
Australia
