Australia’s mortgage burden is now above 1989 levels – when interest rates were 17% | Housing

New analysis reveals Australia’s national mortgage burden is now heavier than it was when lending rates reached 17% in the late 1980s.

Terry Rawnsley, an urban economist at KPMG, said his research was in part a “myth-busting” exercise aimed at debunking oft-repeated claims that previous generations had a harder time buying and paying for homes.

“From that perspective, the data tells a pretty clear story,” Rawnsley said.

“While paying off your mortgage was a source of security in the past, it is increasingly a source of anxiety.”

According to historical data from the RBA, mortgage rates reached 17% in mid-1989 (the Reserve Bank’s cash rate rose as high as 17.5% in 1990) and remained at that level for about a year.

KPMG analysis shows that at the beginning of 1990, the share of interest payments in household income reached 5.7%, housing interest rates reached 3.4% and consumer debt interests reached 2.3%.

Move forward to early 2026, when mortgage rates average 8.3% for the three months through March.

While homeownership rates have been steadily declining, rising home values ​​have pushed homebuyers to take on more and more debt in recent years.

Even though lending rates were only half what they were in the late 1980s, households overall were devoting a much higher share of their income to mortgage payments; When consumer debt obligations were included, this rate was 5.4%.

Rawnsley said the total debt burden figure will rise towards 6% as the full impact of this year’s three interest rate hikes is reflected in borrowing rates.

While the late 1980s and early ’90s are often cited as the historical peak of mortgage stress, “the data shows that borrowers have actually faced tougher circumstances over the last few years,” he said.

Of course, homeowners at the time faced other challenges as well; The unemployment rate is at least double digits.

Rawnsley said the data he analyzed was the sum of household income and interest payments, and a wide range of outcomes were hidden within the high-level figures.

“That total number is the best number we can look at,” he said.

“This will include first-time buyers who are up to their eyeballs in debt, people who are halfway through their mortgage and so aren’t too worried, and people who bought 20 years ago and aren’t affected.”

Rising interest rates, the rising cost of living linked to conflict in the Middle East and recent tax reforms have combined to cause Sydney and Melbourne house prices to fall in recent months.

But Tim Reardon, chief economist at the Housing Industry Association, said any price cuts would be short-lived, pointing out that HIA analysis showed house affordability was at its worst on record dating back to 1994.

“This decline is pretty typical of what we’ve seen over the last 25 years: short-term price declines followed by long-term rapid price increases,” he said.

“Even a 5-10% drop in house prices would only put them back to where they were 12 to 18 months ago.”

Reardon acknowledged it is harder to buy a house today than it was in the late 1980s and criticized Labour’s reforms to CGT and negative gearing on the basis that it would reduce much-needed supply.

“If you can keep rental vacancies above 3%, nominal house prices will remain unchanged and that will be a success in housing policy.

“The goal should be for house prices to be stable for a long time, perhaps more than a decade.”