Housing affordability remains near record low despite interest rate cuts

Housing affordability remains near its worst level on record despite a slight improvement this year, though experts predict affordability will deteriorate further in 2026.

The annual PropTrack Housing Affordability report found higher incomes and lower mortgage rates saw affordability improve slightly during the 2024-25 financial year, though mortgage serviceability and saving a deposit remain key hurdles for buyers.

Nationally, a median-income household earning about $118,000 a year could afford just 15% of all homes sold in the 2025 financial year, up from 11% a year prior.

Yet conditions remain challenging, particularly for low-income households at the 30th income percentile, who could afford to buy just 3% of homes sold in the past year.

REA Group senior economist Angus Moore said conditions had improved modestly across the country during the first half of 2025.

“Higher income growth, coupled with lower interest rates following the RBA’s cuts in February and May, eased borrowing costs and boosted borrowing capacity,” Mr Moore said.

“But even so, affordability remains near record lows, with conditions particularly challenging in News South Wales and South Australia.”

Since the start of the year, the Reserve Bank of Australia has cut interest rates three times to 3.6%, trimming mortgage costs and strengthening borrowing power for many.

However, home prices have also marched higher this year, with the national median home price rising 7.5% to $858,000 during the year to October, according to PropTrack.

Affordability hurdles

Despite the slight easing in housing affordability this year, buyers still face challenges around mortgage serviceability and saving a deposit.

The report found that an average-income household in Australia, saving 20% of their income for a 20% deposit on a median-priced home, would need to save for the equivalent of 5.8 years.

Real Estate Buyers Agents Association of Australia (REBAA) president Melinda Jennison said home buyers, especially first-home buyers, were feeling affordability pressures.

“For many first-home buyers, particularly in cities like Brisbane, Perth, and Darwin where property prices have surged over the past year and rents remain high, the biggest challenge remains saving a deposit while managing everyday living costs,” she said.

“Schemes like the First Home Buyers Guarantee have certainly helped ease the deposit hurdle for some, allowing eligible buyers to enter the market with as little as 5% saved.”

But Ms Jennison said the real challenge for many now lies in meeting the mortgage serviceability criteria.

“Even when buyers can access support to get in the door, tighter lending assessments continue to hold a lot of people back, especially those without family support or with variable incomes,” she said.

“So while repayments might look more manageable, home ownership still feels just out of reach for many would-be buyers.”

The report said an average-income Australian household would need to spend about a third of their income (32.7%) on mortgage repayments to buy a median-priced home, a slight decline from its peak of 34.3% in the June quarter of 2024.

Affordability tipped to worsen

Real Estate Institute of Australia (REIA) president Jacob Caine said renewed home price growth, rising rents, and record-low vacancy rates would continue to push affordable housing further out of reach for buyers and renters.

While experts have put forward a range of solutions to make housing more affordable, the most popular option has been increasing supply by building more new homes.

“We need to boost supply through faster planning, more diverse housing types, and greater investment in social, affordable, and build-to-rent housing,” Mr Caine said.

“On the demand side, balanced buyer assistance and targeted renter supports can help ease pressures without fuelling price escalation.”

“Affordability is likely to worsen in 2026 as inflation and interest rate pressures continue and rental vacancy rates remain very low. The positive news is that planning reforms, new social and affordable housing programs, and major build-to-rent projects coming online should start to help, even if gradually.”

Ms Jennison said housing affordability was likely to continue on its current trajectory next year, but there was a chance it could get worse.

“New housing supply is already falling well short of the Federal Housing Accord targets, while prices are rising again across many parts of the country, so the gap between incomes and entry-level property prices risks widening rather than narrowing,” she said.

She said recent commentary from the major banks suggested any meaningful rate relief had been pushed back, and we were now more likely to see an extended period of relatively high borrowing costs, with the risk of further increases if inflation proved sticky.

“In that environment, the real swing factors will be wages and supply,” she said.

“Unless we see stronger income growth and a material lift in new housing, many buyers – especially first-home buyers without parental help – will continue to face big deposit gaps and intense competition for a limited pool of well-located homes.”

Mr Moore said while there was a chance of another rate cut next year, we weren’t likely to see more than that.

“The three cuts we’ve already seen in 2025 will continue to support home price growth, albeit at a slower pace than in recent years given the very challenging level of housing affordability,” he said.

“As a result, affordability will remain challenged in the year ahead.”

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