Home prices are falling, yet fewer suburbs are within reach of ordinary buyers than a year ago. That is the uncomfortable finding from a new study of median prices and lending rates across 3,363 Australian suburbs, and it lands just as a major rate decision looms.
The short version: cheaper houses have not made buying easier. Higher interest rates and bigger loans have cancelled out the price drops.
The numbers behind the squeeze
The study tested whether typical households could service a median-priced home in each suburb. The results, measured over September, are stark.
- Dual-income couples on standard wages could manage a median-priced home in about 38.61 per cent of suburbs. A year earlier it was 53.63 per cent.
- Singles fared worst. Just 2.83 per cent of areas passed the test, down from 6.24 per cent in 2025.
That is a drop of roughly 15 percentage points for couples in one year, during a period when prices have been softening. The squeeze now reaches households that were once seen as the comfortable middle of the market.
Key numbers
- 3,363 suburbs tested
- 38.61 per cent of suburbs affordable for dual-income couples, versus 53.63 per cent a year before
- 2.83 per cent of suburbs affordable for singles, versus 6.24 per cent in 2025
Why a price fall does not fix serviceability
Here is the catch. Borrowing capacity is driven mostly by the interest rate lenders use to test your repayments, not by the sticker price alone. When rates rise, the maximum loan a household can get shrinks quickly. When prices fall, the saving is usually smaller and slower.
An industry economist quoted in the study made this point directly: rate rises erode borrowing capacity faster than prices fall. In plain English, a buyer can see a house get cheaper and still be able to borrow less than before.
The economist also argued that only deep price cuts would change the picture. Those would carry their own risk, because recent buyers could slip into negative equity. So the version of events where falling prices rescue affordability comes with a nasty trade-off attached.
The hurdle has moved from deposit to repayments
A property expert in the report said the main barrier is no longer saving a deposit. It is servicing the repayments. That shift matters for policy.
The 5 per cent deposit scheme was built to solve a deposit problem. If lenders are constraining buyers on income and repayment tests instead, a lower deposit does little to widen the pool of eligible borrowers. The scheme can get someone to the front door, but the loan assessment can still turn them away.
Which borrowers look most exposed
The study points to a few groups, though it does not give a full breakdown, so treat this as direction rather than precision.
- Singles on one income. With only 2.83 per cent of suburbs passing, they have the least room if rates move again.
- Recent buyers with small deposits. Falling prices plus a small deposit is the classic route to thin equity. If values fall further, the buffer shrinks.
- Couples at the edge of their borrowing limit. A drop from 53.63 to 38.61 per cent suggests many were close to the line. A further rate rise pushes more of them over it.
For existing owners, the issue is different. A higher rate lifts repayments while the equity they built may be shrinking. Our look at household buffers and mortgage arrears risk covers how thin those cushions can be.
Scenarios from a further hike
We do not have a repayment calculation for the next move, and the study does not offer one, so these are broad cases rather than forecasts.
- Base case: rates hold or move slightly. Affordability stays poor, prices keep drifting lower, and the share of passable suburbs changes little.
- Downside: a further hike. Borrowing capacity falls again, the couples’ figure slides below 38.61 per cent, and the pool of buyers thins out. That puts more pressure on prices, which feeds back into equity for recent buyers.
- Upside: rates ease. Serviceability improves faster than prices can recover, and the affordable share of suburbs widens.
The pattern in recent data is consistent with this. Our coverage of four straight months of falling prices alongside rate hikes shows the two forces pulling in the same direction. For the wider cycle, see our guide on house prices, downturns and auctions.
The practical take
If you are buying, test your borrowing capacity at a rate above today’s, then check what a further rise does to the repayment, not just the price. A cheaper house is only a win if the loan still fits.
If you already hold a mortgage, work out how much equity you would keep if values fall again, and whether your repayments cope with another increase.
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General info, not financial advice.
