Average earners can’t afford Adelaide homes as rate rises loom

1 week ago 13

Jayden Finch with Mapel. Jayden has recently bought a property and has factored in future rate rises. Picture: Eleni Tzanos

New data highlights the shocking growing number of South Australians living on a knife’s edge as interest rates look set to rise on the back of overseas conflict and a local cost of living crisis.

According to Canstar data, an average-earning single South Australian – those earning $76,000 a year – with a 20 per cent deposit could afford to buy in just 25 locations across the state without sending themselves into mortgage stress if we were to see an interest rate rise this month.

Concerningly, none of those locations are in metropolitan Adelaide.

That number drops by two in the event of two rate rises.

It’s worse for those buying on a 5 per cent deposit, with just 13 locations available at less than the 30 per cent maximum salary dedication to avoid mortgage stress.

Add another rate hike and that drops to 12.

That’s 12 out of 424 suburbs or towns the company has data for.

The cheapest of these is Coober Pedy, with a median property value of $71,250.

That’s followed by Peterborough, Quorn, Whyalla Stuart and Cleve, all with medians under $250,000.

Canstar data insights director Sally Tindall. Picture: supplied

Canstar.com.au’s data insights director Sally Tindall said things were tougher than ever for hopeful buyers.

“This research confirms a brutal reality – that the great Australian dream of owning your own home has officially decoupled from the average Australian wage in many locations,” she said.

“Only when people buy in a team of at least two, and have a decent deposit behind them or an inheritance from a family member or property they already own, can they start to consider something as commonplace as a house in Australia’s largest capital city.”

As Ms Tindall indicated, buying with another person opens up the market significantly, but still presents significant challenges.

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Couples buying with a 20 per cent deposit can afford 141 suburbs after one rise, and 132 after two, while couples borrowing 95 per cent of the home’s value can afford to purchase in 86 locations after one rate rise, and just 79 after two.

Ms Tindall said the expectation of further rate hikes put home ownership further out of reach for many.

“For the average income earner on a full-time wage, a standard 0.25 percentage point hike to the cash rate translates into a $12,000 drop in the maximum amount they can borrow from the bank,” she said.

“Not a deal breaker for most, in isolation, however, a series of hikes could put the goalposts out of reach for already stretched buyers.”

She said buying with a five per cent deposit was a risky strategy, however, that small deposit then demands a higher income to get the green light from the bank, which just shifted the barrier from having a super-sized deposit to having a sizeable salary.

Professor Emma Baker of the University of Adelaide. Supplied

Adelaide University professor and Australian Centre for Housing Research director Emma Baker said the location of these affordable areas was problematic.

“Concerningly most of the affordable suburbs are away from job markets, so that makes the affordability worse because if you can afford to live there then you have to be able to afford the petrol to get to work,” she said.

“We have a pretty impressive affordability problem in South Australia.

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“To some extent our affordability problem is due to the fact that it’s a great place to live and people want to come and live here.”

She said supply was needed in the places people want to live.

“This list of places, while lovely places, they’re probably all quite a way from work, and that’s a beautiful demonstration of that.

“We need more supply but we don’t need it at the cost of building houses that don’t match up to what people need.”

Jayden Finch with Mapel. Jayden has recently bought a property and has factored in future rate rises. Picture: Eleni Tzanos

Rentvester and real estate agent Jayden Finch, 25, has recently purchased a property interstate and said it was important buyers stress-tested their mortgages.

“I was quite mindful of rate rises, so I’ve allowed a buffer of 2 per cent but when I bought I didn’t expect rates to go back up, so that’s a bit of a pain, but in saying that the market’s strong, so the value growth is good which counteracts that,” he said.

“In unpredictable times we don’t know what’s around the corner, and even if we’re thinking rates are going to go down there’s no guarantee.”

– with Aidan Devine