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How much more will you need to earn to buy a house if prices go up 19 per cent?

By Ray White Drysdale Customer Service
Buyers need to earn a lot more by year’s end to comfortably meet mortgage repayments on new median prices. Photo: Peter Rae
Households in every capital city will need a significant pay rise this year if they are hoping to enter the property market without being in mortgage stress, new analysis shows.

Financial comparison site RateCity has calculated the annual household income needed to buy now, based on current house price medians and comfortable mortgage repayments after laying down a 20 per cent deposit, and compared it with the projected annual household income needed to buy by the end of 2021.

Rate City found that if house prices reached the dizzying heights forecast by ANZ this year – rising by up to 19 per cent – households looking to buy would need up to $18,881 extra in their pay packet. In Sydney, house prices are forecast to jump 19 per cent from the current median of $1,309,195 to $1,441,671 by the end of the year. While the annual income needed to avoid mortgage stress now is $186,592, by then that figure would hit $205,473. Mortgage stress is defined as paying more than 30 per cent of a household’s pre-tax income on the monthly mortgage repayments.

The analysis comes hot on the heels of Treasury’s forecast this week that there would be no real increase in wages for up to four years.

What you need to earn to buy a house with a 20% deposit and comfortably avoid mortgage stress now
CitiesMedian house price (Domain, March 2021)Monthly mortgage repayment (based on 20% deposit)Annual income to avoid mortgage stress
Sydney$1,309,195$4,353.80$186,592
Melbourne$974,397$3,240.41$138,875
Brisbane$632,999$2,105.07$90,217
Adelaide$599,706$1,994.36$85,472
Perth$578,612$1,924.21$82,466
Hobart$601,567$2,000.55$85,738
Darwin$554,295$1,843.34$79,000
Canberra$927,577$3,084.71$132,202
Source: RateCity analysis based on Domain house prices and ANZ’s annual forecast

With that in mind, a salary increase or wage rise of this scale was unlikely, leaving many hopeful home owners priced out of big capital cities, according to RateCity research director Sally Tindall. “It’s very much an uphill battle for anyone looking in Sydney and Melbourne who is trying to save for their first property,” Ms Tindall said. “Incomes just aren’t keeping up with property prices increases and that has the potential to start cutting people out of the market. And those people are most likely to be first-home buyers and low-income earners.” Every capital city is forecast to record a double-digit increase in their median house price by the end of this year.

In Melbourne, households looking to buy a median priced house by year’s end need to earn $154,759 to comfortably meet their monthly repayments without mortgage stress, based on a 20 per cent deposit.

That’s an annual increase of $15,884 in income to cover repayments without mortgage stress on the projected median of $1,085,845 if house prices rose 16 per cent by year’s end.

What you need to earn to buy a house with a 20% deposit and comfortably avoid mortgage stress by the end of 2021
CitiesANZ forecast – end 2021Forecast median house price end 2021Monthly mortgage repayment (based on 20% deposit)Annual income required
Sydney19%$1,441,671$4,794.36$205,473
Melbourne16%$1,085,845$3,611.04$154,759
Brisbane16%$715,009$2,377.80$101,906
Adelaide13%$648,918$2,158.02$92,486
Perth19%$670,225$2,228.87$95,523
Hobart18%$665,627$2,213.58$94,868
Darwin16%$619,260$2,059.39$88,259
Canberra17%$1,000,970$3,328.78$142,662
Source: RateCity analysis based on Domain house prices and ANZ’s annual forecast
In Brisbane, households will need to earn $101,906 to meet monthly repayments without mortgage stress on the forecast median house price of $715,009 by year’s end. That is an annual increase of $11,689 from the current salary of $90,217 to cover mortgage repayments without incurring financial stress. Ms Tindall also urged prospective buyers to factor in future rate rises. “Even if you renegotiate your home loan, you need to factor in wiggle room to meet your monthly repayments.”
What you need to earn to buy a unit with a 20% deposit and comfortably avoid mortgage stress now
CitiesMedian unit price (Domain, March 2021)Monthly mortgage repayment (based on 20% deposit)Annual income to avoid mortgage stress
Sydney$751,038$2,497.62$107,041
Melbourne$568,793$1,891.55$81,067
Brisbane$398,612$1,325.61$56,812
Adelaide$344,062$1,144.20$49,037
Perth$371,445$1,235.26$52,940
Hobart$430,716$1,432.37$61,387
Darwin$293,731$976.82$41,864
Canberra$473,304$1,574.00$67,457
Source: RateCity analysis based on Domain house prices and ANZ’s annual forecast

It is a similar picture for households looking to buy an apartment. Again, Sydney households face the brunt of the property pressures with an extra annual income of $16,742 needed to cover the projected median unit price of $868,510 without incurring mortgage stress. Melburnian households need an $13,116 annual bump in their annual income to meet their monthly repayments on the forecast median unit price of $660,825 by December 2021.

What you need to earn to buy a unit with a 20% deposit and comfortably avoid mortgage stress by the end of 2021
CitiesANZ forecast – end 2021Forecast median unit price end 2021Monthly mortgage repayment (based on 20% deposit)Annual income required
Sydney19%$868,510$2,888.28$123,783
Melbourne16%$660,825$2,197.61$94,183
Brisbane16%$458,453$1,524.61$65,340
Adelaide13%$395,638$1,315.72$56,388
Perth19%$413,626$1,375.54$58,952
Hobart18%$510,411$1,697.40$72,746
Darwin16%$331,225$1,101.51$47,208
Canberra17%$567,930$1,888.68$80,944
Source: RateCity analysis based on Domain house prices and ANZ’s annual forecast.

The increasing amount of income needed to cover housing costs underscored the rise of the Bank of Mum and Dad, independent economist Saul Eslake said. “You go back 40 years, not only did they not need their parents but they didn’t usually need a second income,” Mr Eslake said. “That’s just going to get worse. “The second thing this highlights is just how counterproductive the response of governments to these problems has been for the past 50 years. “Government policy has gradually moved away from a complete emphasis on boosting the supply of housing,” he said, adding that it has since moved to inflating demand for it, which has driven up prices as a result.

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