Australian house prices are falling but still not affordable for most buyers

Lower asking prices can give buyers more room to negotiate. They do not necessarily give households the income, deposit or borrowing capacity needed to purchase a home.

A reduced asking price can look like good news for anyone hoping to buy a house or apartment.

After years of watching property move beyond their reach, prospective buyers may finally see something encouraging: an agent revising a price guide, a vendor considering an offer previously dismissed, or a property remaining available long enough for a considered decision.

Those changes matter. But a cheaper property is not automatically an affordable property.

Australia can have falling residential property prices, rising rents and households still unable to buy. These conditions can exist together because the need for somewhere to live is different from the financial capacity to purchase it.

The central question is not simply whether a home costs less than it did last year. It is whether a household can save the deposit, obtain finance and meet repayments while paying for the rest of life.

For many Australians, that remains a formidable exercise.

Why sellers are reducing their expectations

An asking price expresses what a vendor hopes to receive. A sale price records what a buyer has agreed to pay.

The gap becomes more visible when buyers have less money available, less confidence or more properties from which to choose.

Cotality’s October Housing Chart Pack reported a national median selling time of 41 days, compared with 26 days a year earlier. Total advertised stock was 19.1 per cent higher than a year earlier, even though fewer new listings were coming onto the market. Homes were accumulating because buyers were purchasing them more slowly.

For a vendor, a longer campaign can change the calculation.

Continuing to hold a property may mean further mortgage repayments, insurance, rates and maintenance. Someone who has already purchased another home may face additional pressure. An investor may decide that the return no longer justifies the costs.

Other sellers simply discover that their original expectations were too ambitious.

A price reduction therefore does not, by itself, establish financial distress. It may reflect an optimistic starting point, weaker competing offers or a decision to meet the market.

Nor does a reduction from an advertised price necessarily mean the property is worth less than it was a year ago. Those are different comparisons.

The buyer’s budget has changed

Property prices depend partly on the amount buyers can borrow.

When interest rates rise, a household’s income must support higher repayments on the same debt. Unless income rises sufficiently or other expenses fall, the amount that household can borrow generally declines.

That change works its way back into offers.

A purchaser who previously qualified for a larger mortgage cannot necessarily continue bidding at the same level because a seller still wants yesterday’s price.

This is one reason housing values can fall without the buying experience becoming substantially easier. A lower purchase price may arrive alongside more expensive finance.

Recent Housing Industry Association figures illustrate that distinction. Its affordability index improved by 3.6 per cent in the September quarter as dwelling prices fell, but affordability remained 5.4 per cent worse than a year earlier. The index considers prices, mortgage interest rates and wages together.

Lower prices can improve affordability. The difficulty is that other parts of the household equation can move in the opposite direction.

Banks still want borrowers, but repayment capacity matters

Banks remain in the business of lending. However, competition for customers does not remove the need to assess whether a borrower can repay.

A substantial deposit is only one part of that assessment. Income, living expenses, existing debts and the proposed loan repayments also matter.

Prudential regulation adds another constraint. APRA’s published settings retain a mortgage serviceability buffer of three percentage points. Broadly, banks assess repayment capacity at an interest rate above the actual loan rate to allow for potential financial pressure. APRA also limits the share of new lending at debt-to-income ratios of six times or more.

These safeguards can frustrate applicants who believe they could manage the advertised repayment. Their purpose is to give lending some resilience if circumstances deteriorate.

It would be too broad to describe every unsuccessful application as evidence that banks have stopped lending. Often, the practical issue is that the available loan falls short of the price being sought.

A property can become cheaper and still remain beyond the bank-approved budget.

The deposit remains a major undertaking

Consider an illustrative property originally priced at $900,000.

A 5 per cent reduction brings the price to $855,000—a meaningful saving of $45,000.

But a 20 per cent deposit falls from $180,000 to $171,000. The purchaser still needs a very substantial sum, plus applicable purchasing costs.

Smaller-deposit pathways are available to some buyers. They can reduce the upfront hurdle, but they generally leave a larger share of the purchase to be financed.

Meanwhile, someone saving a deposit must continue paying rent, groceries, transport, electricity and other expenses.

A household can work diligently towards ownership while finding that little remains to save. A reduction in the price of the intended purchase helps, but it does not instantly overcome years of accumulated disadvantage.

Why rents can rise while property prices fall

The purchase market and rental market overlap, but they respond to different immediate pressures.

Buying usually requires a deposit and access to substantial credit. Renting requires the capacity to meet rent and secure an available tenancy.

Someone unable to obtain a mortgage still needs a home. Delayed purchases can keep households in the rental market for longer.

Cotality reported that national rents rose 5.5 per cent over the year to September. Rental growth was slowing and vacancies had increased, but the national vacancy rate of 2 per cent remained below the pre-pandemic decade average of 3.3 per cent. Conditions were easing without eliminating rental pressure.

Higher mortgage costs do not automatically allow landlords to charge whatever rent they need. Achievable rents depend on local availability, competition and tenants’ capacity to pay.

Nevertheless, an ownership downturn does not itself create additional rental accommodation.

Supply and demand still govern the outcome

There is an important distinction between demand for shelter and demand backed by purchasing power.

The first can remain strong while the second weakens.

A town may need more homes for workers and families even as its available properties struggle to sell at the prices vendors expect. Those households need accommodation, but their incomes and borrowing limits may not support the asking prices.

Building more suitable homes in places people need to live remains central to lasting improvement. So do household incomes, financing costs and the expense of delivering new housing.

Falling prices redistribute some negotiating power towards buyers. They do not resolve all those problems.

The Times View

The useful measure of housing progress is whether more Australians can obtain a suitable home without leaving their finances permanently stretched.

A lower asking price is welcome for a buyer who can act on it. For someone still struggling to save a deposit or qualify for a mortgage, it may remain a distant opportunity.

Australia’s housing problem will not be resolved simply when vendors accept less. Progress comes when the cost of a home moves within reach of the people who need to live in it.