Canberra overtakes Perth as second-most affordable housing market

Housing affordability is also set to improve further, even as Canberra house prices are forecast to reach $1 million again by the end of the year.

Above-average wages coupled with a downward trend in home values during 2023 had led Canberra to overtake Perth for housing affordability, Oxford Economics Australia's Residential Property Prospect Report revealed.

In the fourth quarter of 2023, Canberra home owners were spending 33.5 per cent of their income on mortgage repayments on a 30-year loan, compared to the capital city average of 46 per cent.

Darwin was the most affordable market with home owners spending 21.1 per cent of their income on mortgage repayments.

Meanwhile Sydney home owners were the worst off, forking out 56 per cent of their income on repayments.

Senior economist and report author Maree Kilroy said public sector wages had supported housing affordability in Canberra.

The average public sector wage grew 4.3 per cent in 2023, according to the Australian Bureau of Statistics, rising at the fastest rate in more than a decade.

Ms Kilroy said higher interest rates and an undersupply of homes were opposing forces on the Australian housing market in 2023.

"The weight of demand eventually won out, creating upward price pressure that broadened across markets and price brackets throughout the year," she said.

But Canberra bucked the national trend, Ms Kilroy said, and the median house price fell 2.8 per cent throughout the year.

Total property listings on the market increased by 25 per cent but demand failed to keep pace, the report noted.

Momentum is expected to return to the market however, with the report predicting Canberra house and unit prices will increase throughout 2024.

Canberra house prices are expected to increase from the most recent median of $972,400 to $1 million by the end of this year.

Canberra's median house value dropped below $1 million towards the end of 2022, according to CoreLogic data.

Oxford Economics Australia expects the median house price to rise an average 6 per cent annually until 2027, when the median will reach $1.17 million.

Unit price growth is expected to "subtly outpace" houses. Canberra units are forecast to rise 6.1 per cent each year, the report found.

The median unit price, now about $625,600, could reach $751,400 by mid-2027.

Despite the price growth predictions, mortgage affordability is set to improve in the coming years.

By mid 2026, Oxford Economics Australia expects Canberra home owners will be spending about 28 per cent of their income on mortgage repayments.

Nationally, the firm expects mortgage affordability to ease to 40 per cent by mid 2027.

The outlook comes as economists expect the Reserve Bank to begin cutting the cash rate by the end of 2024 and real wages to continue to lift.