Young Melbourne homebuyers are being forced to reassess their budgets as property prices outpace wages. Experts say the income needed to buy a unit will rise more than $7000 by 2026.
Melbourne first-home buyers have been warned they’ll need to be earning as much as $7200 more next year to cope with a mortgage if they don’t buy a home in 2025.
New modelling based on figures from KPMG show that interest rate cuts anticipated this year — the next potentially as soon as Tuesday — will cause home prices to outpace wage growth in the Victorian capital.
And those hoping to buy more affordable homes are expected to face the biggest challenge.
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KPMG have forecast an about $30,000 (3.5 per cent) increase in Melbourne’s $600,000 median unit price this year.
Finder.com.au analysis has indicated that the income needed to make the repayments on a home loan for such a unit could rise from $116,351 in January 2025, to $123,597 by December 2026.
It assumes buyers have a 20 per cent deposit and take out a 30-year loan, with mortgage repayments capped at 30 per cent of gross income.
Homes in Melbourne’s outer suburbs remain in high demand, and the income needed to buy one is rapidly increasing. Picture: NewsWire / Andrew Henshaw
The calculations are based on a typical home loan rate of 6.1 per cent today dropping to 5.6 per cent next year.
The Reserve Bank of Australia’s meeting this Tuesday could provide the second interest rate cut this year, boosting borrowing capacity and reducing costs for existing mortgage holders.
However, Finder insights manager Graham Cooke said for those expecting to buy a home in a year’s time, the benefits of any rate relief would be outweighed by rising property prices.
With Melbourne unit prices forecast to jump more than 11 per cent by 2026, many first-home buyers are shifting away from houses and toward apartments. (Photo by Asanka Ratnayake/Getty Images)
“As long as the increases in prices remain bigger than wage increases, property will continue to get more unaffordable, even if buyers get a little bit of rate relief,” Mr Cooke said.
“You will have to earn more to pay the mortgage as prices grow, but you’ll also need to earn more to save fast enough to keep up with the increased deposit requirements.”
The Finder insights manager added that it was already unrealistic for most Australians to buy a house on one income.
Labour shortages and stalled projects are putting pressure on Melbourne’s housing supply. (Photo by Asanka Ratnayake/Getty Images)
“The notion of one job being enough to get into the market is long gone, unless it’s an apartment,” Mr Cooke said.
A concentration of buyers on units would validate the KPMG forecast for units outperforming their $29,000 (3.5 per cent) growth projection for the city’s $830,000 typical house price.
The Finder.com.au analysis indicates those buying a home in that space would need to be earning an extra $6328 a year to cover the growth by late 2026.
Saving for a deposit remains one of the biggest challenges for first-home buyers, with rising property prices pushing entry-level homes further out of reach. Photo: iStock
For both units and houses, M R Advocacy director and buyer’s advocate Madeleine Roberts said the KPMG home price rise forecast reflected what she was already seeing.
“While that’s an average, there are certain suburbs where unit prices have surged beyond that level in just the past 12 months,” Ms Roberts said.
She added that strong demand, particularly from first-home buyers, had pushed more people into the unit and townhouse market.
Young buyers across Melbourne are racing against rising property prices — and many are being priced out before they even make an offer. Picture: Mark Stewart
“If you’re a first homebuyer with a budget of $750,000 and want to live within 30 kilometres of the CBD, you’re unlikely to find a stand-alone house in most areas,” she said.
Housing Industry Association senior economist Tom Devitt said household incomes had begun to recover since the peak of the inflation surge, but affordability challenges remained.
Mr Devitt added that it was unlikely construction of new homes would reach the level needed to keep home prices on hold unless an additional 83,000 tradies nationwide.
New data reveals buyers across Melbourne’s suburbs may need to earn thousands more to afford a home by 2026 — even as interest rates fall. Photo: Asanka Ratnayake/Getty Images)
On that basis, he said it was probable home values would rise — and that units might face the biggest impact due to supply shortages.
The economist added that units might face the biggest impact due to supply shortages, with new construction for them at decade lows.
“That’s pushed the momentum back toward detached housing, which tends to be quicker and more straightforward to build,” he said.
But, with clever use of timing, Mr Devitt said some buyers could potentially avoid future price increases by purchasing off-the-plan rather than waiting to buy an existing home.
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