Real estate is cheaper but may not be more affordable as interest rates rise

Jasjeet Makkar, Virk’s mortgage broker and managing director at Icon Mortgages, said most of his clients’ budgets were cut much more as house prices fell.

“Everyone has severely impacted their borrowing capacity. Much of the price drop was offset by reduced borrowing capacity,” Makkar said. “Becoming an owner is effectively a lot more expensive than it was last year.”

Domains Head of Research and Economics Dr. Nicola Powell said that while Sydney has seen its sharpest annual fall in house prices, it is unlikely to fall sharply enough to offset a sharp rise in mortgage payments.

“We would need to see a significant drop in prices that exceeds our expectations to match rock-bottom mortgage affordability,” Powell said.

That’s unlikely, she said, as no downturn has erased gains from the previous boom, historical data shows.

“We have never seen a recovery in the last 30 years that has been wiped out by a fall in Sydney property prices, that has never happened, growth is unlikely to be wiped out,” she said.

ANZ senior economist Felicity Emmett said this week the bank’s analysis suggested a 30 percent price drop would be needed to make housing more affordable in the environment of higher interest rates, but she doesn’t expect prices to fall that far .

Matthew Hassan, senior economist at Westpac, said while falling prices meant a smaller deposit was required and therefore less time needed to save, these benefits were offset by rising interest rates and the extra money needed to pay off the loan each month. nullified.

“If you have a 10 percent cheaper house and a 10 percent cheaper deposit, you still have to consider the ongoing mortgage,” Hassan said. “So the declines are not enough to restore affordability in terms of higher mortgage repayment requirements.”

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Agents say Sydney is more expensive to live in despite a record price drop thanks to faster-rising mortgage rates across the board.

“Housing is still very expensive and with interest rates rising, people are really struggling to borrow enough money to buy property in Sydney,” said Leanne Pilkington, chief executive of Laing+Simmons.

“Everyone says the same thing, ‘I can’t borrow that much money, so I can’t afford the house that I could have afforded now.'”

BresicWhitney chief executive Thomas McGlynn said while buyers could find properties at a discounted price, any benefits have been offset by rising mortgage rates.

“Any discount would be eaten up by special repayments. In fact, the repayments have probably made it less affordable to buy a home in Sydney,” McGlynn said.

“If you’re buying purely cash in the bank, you’d be better off today in terms of buying a property… But the majority of buyers buy on a mortgage.”