Australia's housing affordability is at a near-record low, according to a new report from REA Group and the Commonwealth Bank. Despite lower mortgage rates, conditions for first-time home buyers remain challenging. The report highlights that the surge in mortgage rates from 2022 to 2023 has significantly impacted affordability across all income levels.

"This is especially true for first-home buyers, as they are typically younger than existing homeowners, earlier in their careers, and earn lower incomes," the report states.

For prospective first-home buyers, defined as those aged 25 to 39 with an annual income of $129,000, only 17 percent of homes sold last year were affordable. This marks the lowest level since data collection began in 1995. In contrast, existing homeowners with a mortgage could afford 33 percent of homes.

Angus Moore, a senior economist at REA Group, noted that saving for a deposit is a significant barrier for first-time buyers. He stated, "Despite these conditions, first-home buyers are finding ways to enter the market. There were more first-home buyers in the past year than was typical during the 2010s."

Moore attributed this trend to recent government policies, low deposit loans, and Lenders Mortgage Insurance, as well as assistance from family members. Many first-time buyers are also looking for homes in more affordable areas or opting for semi-detached homes or units to navigate the affordability crisis.

The report indicates that housing market conditions are improving, with interest rates declining from their peak and further cuts anticipated. The average loan-to-value ratio (LVR) for first-home buyers is around 85 percent, meaning many enter the market with a deposit of less than 20 percent.

As of June 2025, an average-income household in Australia would need to save for approximately 5.9 years to afford a 20 percent deposit on a median-priced home. South Australia has the highest deposit requirements, taking about 7.2 years, followed by New South Wales at 6.9 years. The report attributes this to rising home prices and lower average household incomes in these regions.

Looking ahead, home prices in Australia are expected to continue rising through 2025 and into 2026. Belinda Allen, head of Australian economics at the Commonwealth Bank, stated, "After cutting the official cash rate in February, May, and August, our current expectation is that the RBA will cut rates again once more and favor November as the next meeting to do so." She predicts the cash rate will settle at 3.35 percent by the end of the year.

Starting next month, the federal government's Home Guarantee Scheme will allow buyers to purchase a property with a 5 percent deposit while avoiding lenders' mortgage insurance. This scheme will lift income limits and participant caps but will still be restricted to properties below certain price thresholds. Analysts caution that while this may increase the number of first-home buyers, it could also lead to higher property prices in the long term due to increased demand.

In August, national home values in Australia rose by 0.7 percent, marking the seventh consecutive monthly increase. The national median home value now stands at $848,858, reflecting a 4.1 percent rise over the past year.