The dominant force driving house prices

According to experts, inner-ring suburb house prices in capital cities are expected to perform exceptionally well this year. This surge is attributed to affluent homebuyers and individuals who accumulated substantial equity during the pandemic upswing.

Additionally, buyers who are receiving financial and practical support from families, an emerging force in those markets, could also drive prices higher.

Carlos Cacho, Jarden’s chief economist, emphasized that until interest rates decrease, higher-income and wealthy buyers will likely continue dominating the housing market. He anticipates this trend to sustain, particularly in inner-ring suburbs, leading to continued outperformance.

Cacho highlighted that last year’s robust price rebound, with an increase of over 8%, was mainly propelled by higher-income borrowers and those with sizable deposits unaffected by credit constraints. Data from CBA’s half-yearly mortgage report revealed a significant rise in the share of borrowers earning between $200,000 and $500,000 annually.

In contrast, the portion of mortgage applicants earning $75,000 to $100,000 annually only saw a modest increase. Cacho estimated that a household would now need an income 50% above the median to afford the average home nationally, rising to 80% above the median in Sydney.

According to CBA’s data, only the top 20 to 40% of income earners in capital cities can comfortably afford an average home. For single first-time buyers, especially those on lower incomes, purchasing an average home might be challenging, while couples are better positioned to enter the market.

Steve Mickenbecker, a finance expert at Canstar, noted that investors face difficulties unless they belong to upper-income households, given the strain on servicing multiple loans. The affordability challenge is evident in APRA’s data, which indicates a decrease in the proportion of new housing loans secured with a 20% deposit or less.

Theo Chambers, CEO of Shore Financial, highlighted that buyers in the current market, having gained substantial equity in the past three years, can make larger deposits, exerting upward pressure on prices. Sally Tindall, director of research at RateCity, pointed out that rising interest rates have affected the maximum borrowing capacity, but those not borrowing at or near capacity may not feel the impact.

Demographer Mark McCrindle emphasized the significant role played by Baby Boomer parents or grandparents in supporting their children’s entry into the housing market. Their financial and practical assistance, including underwriting mortgages, private loans, or co-owning property, has likely fuelled price increases. Overall, the economic impact of Baby Boomers, constituting 21% of the population and owning 48% of national wealth, extends to wealth transfers that aid younger generations in homeownership.