Average mortgage could be $1.45m by 2043

In total, values have risen by 412 per cent since 1993, from $111,500 to $571,400.

As such, the joint research suggests that if the growth pattern continues at a similar pace in the next quarter of a century, the national median house value could rise to $2.9 million in 2043.

Concentrating on the capital cities, the report outlined that Sydney house prices would therefore reach a median of $6.3 million, with Melbourne close behind at $5.8 million. This is followed by Canberra ($2.9 million), Perth ($2.48 million), Darwin ($2.28 million), Brisbane ($2.24 million), Hobart ($2.2 million) and Adelaide ($1.9 million).

Looking at the property markets in the capitals, Melbourne has seen the largest annualised growth rate in the past 25 years, with the median house value rising by 8.1 per cent a year.

Behind Melbourne is Sydney (7.6 per cent), Perth (6.7 per cent), Hobart (6.5 per cent), Darwin (6.3 per cent), Canberra (6 per cent), and Brisbane and Adelaide (5.9 per cent).

Mortgages up by 376 per cent

Correspondingly, mortgage sizes have also increased in line with property values, up by 376 per cent (or 6.4 per cent per annum) to $388,100.

Twenty-five years ago, borrowers in the ACT were holding the largest loans, averaging almost $97,000. However, in today’s market, the largest average loan sizes can be found in New South Wales ($445,500) and Victoria ($400,200). 

However, mortgage rates have reduced “significantly” since 1993, the report states. 

It reads: “Twenty-five years ago, mortgage rates were moving lower from their record highs. Variable mortgage rates peaked at 17.0 per cent in March of 1990, and by first quarter of 1993, they had reduced to 10.0 per cent. Today, the standard variable mortgage rate sits at 5.2 per cent, the lowest rate since the 1960s.

“Mortgage serviceability rates have improved thanks to historically low interest rates; however, affordability challenges remain.” 

The proportion of annual household income required to service a mortgage (based on a 20 per cent deposit) is currently tracking at 36 per cent, up from 27 per cent in 2001 (when serviceability data began) but down from its peak of 51 per cent of annual income in June 2008.

Those in Sydney are generally dedicating the largest proportion of their annual incomes to service a mortgage (49.3 per cent), with Melbourne close behind at 42 6 per cent.

“Housing affordability remains a major challenge”

Speaking of the findings, the chief executive officer of Aussie, James Symond, said: “Our report clearly shows that housing continues to grow as Australia’s largest asset class, with the typical home owner showing average dollar growth in their investment at $18,400 a year over the last quarter-century.

“Meanwhile, average mortgage rates are currently close to their record low levels of the 1960s.

“With mortgage rates close to historic lows, loan serviceability levels have improved; however, housing affordability remains a major challenge.”

Mr Symond added: “Housing affordability will remain a major issue for many Australians, largely driven by the dramatic housing price growth in recent years, particularly in Melbourne and Sydney.” 

The Aussie CEO highlighted that, nationally, to raise a 20 per cent deposit for a property, borrowers now need to dedicate 135 per cent of their annual gross income.

“This has caused major issues for young people to get into the property market, with first home buyers falling from 22 per cent of mortgage demand in 1993 to 17.4 per cent in 2018, with the falls in recent years influenced by a worsening of housing affordability as well as lower government first home buyer incentives,” Mr Symond said. 

The report concludes: “Overall, the housing and mortgages sector has changed dramatically over the past quarter of a century.

“Considering the pace of change and advances in technology, the next 25 years are likely to show an even larger contrast with the trends of today.”

[Related: Rebound in credit growth unlikely: CoreLogic]