The biggest problem facing first home buyers in Sydney, where house prices have rocketed in the last few years, is that they can’t save enough for a deposit.
Home prices have been rising faster than wages. Average pay has been rising by less than 2% a year. In Sydney, home prices have jumped by as much as 20% over 12 months.
According to analysis by UBS, the best case for a typical first home buyer, on a wage of $80,000 a year is 11 years of saving $8000 a year to get a 10% deposit. That’s for a $400,000 home.
In Sydney, that becomes an astounding 40 years because the average price for a home is $1.2 million.
“The key driver of time to save is house price growth vs income,” says UBS in a note to clients. “In the last 5 years, house price growth averaged 7%, but income only 4%.”
Using those numbers, most first home buyers would never get to buy a house unless they were given at least part of the deposit.
UBS says the superannuation saving scheme announced in the May federal budget, would cut the required saving time by up to several years.
“Our model suggests if these trends were repeated ahead (an ongoing increase in the house price-income – and therefore the household debt-income ratio), a potential FHB (first home buyer) would likely never be able to save a 10% deposit to buy a home,” says UBS.
Here’s the UBS model for deposit saving. A $1 million home would take more than 90 years to save a deposit for if only 2.5% of income is saved. That drops to 6.6 years when saving 20% of income.
UBS has called the top of Australia’s housing because of housing affordability is extremely stretched.
The house price-income ratio has surged to a record 6.5X, up from 4.5X in 2012 and more than doubling from 3X in 1996.
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