Surprising amount you could afford to spend on a house

The average household could afford to buy a home worth up to only $513,000, leaving the vast majority of properties out of reach.

Even as property prices fall due to ongoing high interest rates that have reduced buyers’ borrowing capacity, most first-home hopefuls without family help still face a steep hurdle.

A household with a gross annual income of $100,000 which saved a 20 per cent deposit and did not exceed 30 per cent of their income on mortgage repayments could borrow enough to make a $513,000 bid, CoreLogic modelling found.

This compares with the national median dwelling value – houses and units combined – of $815,000.

For houses only, the median value in Sydney is much higher at $1.47 million and in Melbourne, $860,000, based on CoreLogic data.

There are only two Melbourne suburbs with a median house value under the budget considered affordable – in Melton and Melton South.

There are no Sydney suburbs with a median house value under $513,000. The cheapest is San Remo on the northern end of the Central Coast, at $694,000.

Across Australia, only 15.5 per cent of house and unit markets analysed have a median value that would be considered affordable.

“It’s a very small portion of the market that would be accessible,” CoreLogic head of Australian research Eliza Owen said.

The modelling assumes buyers have only a 20 per cent deposit, but she said many purchasers in the market are selling one property and buying another, while some are higher-income households and others have larger deposits, including gifts from family.

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But she felt even demand from higher-wealth households was waning as affordability is so stretched, putting downward pressure on housing values. Melbourne values have been in a subtle downturn for months, while Sydney slipped into a downturn in the spring.

Some buyers had been willing to cope with higher mortgage repayments, expecting they would soon fall – which did not happen, she noted.

“Something had to give, and I think at this stage it’s prices that have to give, if interest rates don’t come down and incomes don’t rise more substantially,” she said.

Under the weight of ongoing high interest rates and the uncertainty about when they will fall, buyers started to drop off. The cohort of buyers wealthy enough to manage the deposit and repayments may be at the point of mostly having bought, she said.

Owen said price falls are usually led by the most expensive parts of the housing market.

In Sydney, eight out of the 10 suburbs where house values fell fastest in the December quarter were in the east, led by Little Bay, down 8.8 per cent.

Matraville, Randwick, Waverley, Kensington, Clovelly, Maroubra and Coogee all fell at least 6.6 per cent.

In Melbourne, some of the declining suburbs in the last quarter of 2024 were in the inner suburbs, such as East Melbourne (down 9.3 per cent), Brunswick West (down 7.6 per cent), Clifton Hill (down 7.2 per cent) and Abbotsford (down 6.2 per cent). There were also drops along the bay, in Carrum, Bonbeach, Chelsea, Chelsea Heights and Patterson Lakes.

Buyer’s agent Rich Harvey said several of the eastern Sydney suburbs where values are falling have seen large rises in value in recent years.

“Anyone who has bought in the east would not be worried about short-term fluctuations. They know there’s a very limited land supply, it’s not going to be rezoned for high-density all over,” the chief executive of propertybuyer.com.au said.

“There’s a little window here to buy very well before the market resumes its normal upward trajectory.”

He had noticed a slight decline in numbers at auctions and open homes as buyers hit the limit of how much they can borrow, albeit not for prestige properties above $20 million.

“In the range of $3 million to $10 million in the east, those family homes are definitely more affected by interest rates and there’s more caution by those buyers in the market,” he said.

In Melbourne, buyer’s agent Wendy Chamberlain said buyers were also affected by the rising cost of living.

She had noticed investor selling due to higher taxes on secondary properties, and not enough buyers to soak up the supply.

“[Buyers] were like bees, going from flower to flower and not making a decision,” she said. “Which we were finding frustrating for our vendors because the buyers weren’t committing to anything.”

She had also noticed the upper end of the market leading the downturn as buyers no longer see value, or seek more affordable options if banks are unwilling to lend enough. But with talk of looming rate cuts, they may soon be able to borrow more.

“They might hold off for a few months and wait and see as to what their dollar might be able to buy them.”