How to take the heat out of housing stress and save during the spendy season

It's the club no one wants to be a part of ... but if you've bought a house recently (or alarmingly - even if you rent), it's likely you're part of a growing swell of Aussies who are in housing stress.

Classically defined by spending more than 30% of your gross household income on housing costs, housing stress is no longer limited to low-income households.

With the holiday season upon us, and with property prices, mortgage rates and rents rising at a pace far outstripping wage growth, even middle and high-income earners are feeling the pinch.

So how to survive through to 2025?

Read on for some helpful hints.

What's driving housing stress?
The November 2024 ANZ CoreLogic Housing Affordability Report paints a grim picture: housing affordability is at record lows. Median property values have risen by 8.5% in the past year, reaching $807,000 nationally. Meanwhile, wage growth has been sluggish, with the median household income growing by just 2.8% to $101,000 per year.

For those who've recently bought property, the numbers are stark:

A 20% deposit on a median-priced home now takes the average household over 10.6 years to save, assuming a 15% savings rate. Which I think is ambitiously high if they are simultaneously renting.
Mortgage repayments consume a whopping 50.6% of the median household income, far exceeding the 30% threshold for housing stress.
This financial strain isn't just hitting homeowners.

Renters, too, are battling record-high costs, with 33% of the median income now needed to cover rent. Making saving to be able to purchase a property even harder and further out of reach for many.

Interest rates rises have hurt most borrowers
The Reserve Bank of Australia's aggressive interest rate hikes in recent years to curb high levels of inflation have further exacerbated housing stress. While rate cuts are anticipated in 2025, for now, borrowers are grappling with sharply higher repayment obligations that has meant a serious dent in their pay packet.

A homeowner who took out a $600,000 loan two years ago at a 2.5% interest rate is now likely paying closer to 6%. For many, that's an additional $1,000 or more per month they need to find and cough up to maintain their mortgage.

Practically what this means is there is less money available for everything else in your life, be it groceries, school fees, holidays or other financial goals like investing or boosting your Super.

Regional variations in housing stress
Housing stress is most acute in cities like Sydney and Adelaide, where median house prices and mortgage costs are disproportionate to local incomes:

Sydney, has been adorned with the crown and title of the least affordable market, a staggering 62.1% of household income is needed to service a new mortgage.
In Adelaide, where affordability has plummeted the most since 2020, 56.2% of income is now required to service a loan.
Some areas have seen a staggering increase in overall property values with Perth, Brisbane and Adelaide up 65% from March 2020 to October 2024.
Meanwhile, regions like Hobart offer a glimmer of hope. After peaking in 2022, property values there have fallen by 11.9%, slightly improving affordability. Which no doubt is exciting to see for those who are yet to enter the market, but worrying for those who bought in the last few years who are now seeing their equity sharply down.

Who's most affected?
Whilst most people are feeling it, some demographics are disproportionately affected, including:

First-home buyers: Many are stretching their budgets to secure a foothold in the market, leaving them vulnerable to interest rate rises or unexpected expenses.
Low- to middle-income households: With limited financial buffers, any rise in housing costs can push these households into stress.
Renters: While much of the housing stress conversation focuses on homeowners, renters are facing the sharpest rent increases in decades.

The ripple effects of housing stress
The consequences of housing stress go far beyond a monthly budget tracker or being able to afford smashed avo for brunch on the weekend.

Financial stress impacts mental health, physical well-being and even job performance - employees who are financially stressed are likely to have lower levels of productivity and higher levels of absenteeism.

Once deemed the land of a 'fair go' - now it's more like the land of 'go without' with many Aussies finding themselves needing to cut back on areas they once deemed an essential item-such as healthcare, groceries and transport just to keep up with housing costs.

Many charity shops have made national appeals for items ahead of Christmas with record numbers of people looking for affordable gifts and free mental health services fielding a significant number of calls from people whose health has been impacted by their financial situation.

It's also seeing people think hard about if they can afford some of their big life goals, like starting a family, having more children or upgrading their homes, due to financial stress and uncertainty.

Are there any silver linings?
The current picture is honestly pretty bleak, but there are some potential shifts on the horizon:

Expected interest rate cuts: ANZ Research forecasts that the Reserve Bank of Australia may lower rates in 2025, which would see a reduction in mortgage servicing costs, meaning more freed up cash in household budgets.
Lower barrier to entry for apartments: More Australians are turning to apartments as an alternative to standalone homes, which is no surprise with the average national house to income ratio being 8.6 and considerably less at 6.6 for apartments.
Policy interventions: Governments are under mounting pressure to address the housing crisis. Initiatives like increased social housing, rent caps, and incentives for first-home buyers could provide some relief, but the numbers currently proposed are well under the amounts needed to meet demand.
What can you do if you're in housing stress?
If you've recently bought a home and find yourself struggling, here are steps you can take:

• Refinance your mortgage: If you've had your mortgage for a while, chat to your mortgage broker to make sure you are still getting the best deal for you. Banks love charging you the loyalty tax, so look for a Broker who will proactively ensure you're always getting the best deal for you.
• Cut non-essential spending: If you haven't already, review your budget and identify areas where you can temporarily reduce expenses. With summer here, there are plenty of ways to get outdoors and into nature (which has been shown to increase your immunity and improve your mental and physical wellbeing) without spending a lot of cash.
• Are there ways to bring in additional income? If you can't rip out any expenses, think about ways to bring in income. Be it putting your hand up for a promotion or secondment or even selling things that you no longer use or need. If that isn't possible, consider what skills or education you need to improve your income opportunities over the medium to long term.
• Speak to your lender: If you're experiencing financial hardship, reach out to your bank or lender early. Many offer hardship programs that can temporarily reduce or pause repayments.
• Reach out to a financial counsellor: Places like the National Debt Helpline offer free, confidential financial counselling, they can be contacted on 1800 007 007.

(Source: The Area News)