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Housing affordability is in the toilet (and the toilet’s getting expensive)


Even if house prices slow down in 2022, signs suggest it won't get any easier to buy a home.

Predictions, like hot beverages, are a mug's game. But in the Australian property market, predicting a hard time for first home buyers is very easy money. And there are 4 major factors that are going to make it harder to buy a home next year.

1. House prices are still going to rise, albeit slowly

Economists from some of the nation's biggest banks are predicting a slowdown in property prices in 2022. But that won't help first home buyers much. House prices rose all through 2021, with CoreLogic's December figures showing property values rose 22.2% nationally over the last 12 months.

This has made houses less affordable than ever. New research from the National Housing Finance Investment Corporation (NHFIC) found that "[f]irst home buyers have seen affordability deteriorate over the course of 2020–21 for most income levels across Australia".

2. Property investment is up

Even if house prices do run out of steam, property investors returned to the market in big numbers in 2021 – a 90% rise according to Australian Bureau of Statistics figures. If this continues in 2022, as seems likely, investors will drive prices up and compete with first home buyers for properties. This will only increase competition and worsen affordability.

3. Interest rates will rise

Throughout the last 2 years, home loan interest rates have fallen to historic lows. This has made borrowing money cheaper, but has also driven prices up (the more you can borrow, the more you can spend on a house).

Rates can't really get any lower, so rate rises are inevitable. And when rates rise, it might slow price growth but will also make it harder for new borrowers to get loans.

Most experts in Finder's RBA cash rate survey predict rates to rise in 2023 or later. But a rising number of experts in the latest survey (46%) reckon the rate rise will happen in 2022.

4. Rents are rising

Rents did get cheaper for a lot of tenants in 2021, especially in Sydney and Melbourne. But this looks to have been a temporary situation caused by the pandemic. In the NHFIC's affordability analysis, "Rental affordability remains challenging in most cities and regional areas for the bottom 40% of income earners". This bottom 40% can only afford around 10% of rental properties on the market.

In Finder's latest cash rate survey, 73% of the experts also said they expect rents to rise significantly in 2022.

Rising rents will only make it harder for new home buyers to afford homes. If you're currently renting, spending more each week on rent will eat into your deposit savings. And as property prices have risen so much recently, the amount you need for a deposit has jumped significantly.

Need help saving a deposit? Read our deposit savings guide. Looking for a cheaper home loan? Compare the market's lowest home loan rates.

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