Farheen Khan and her husband Faizan Afzal are about to achieve the great Australian dream — buying a home where their children can grow up, with nearby parks and a good school.
"It feels very special … having that sense of belonging to something that you've earned, you've made for your family, for your kids," Ms Khan said.
"A place where you grow up together and make memories."
The young family bought land in an estate in Perth's south in 2020, when the federal and WA governments offered big incentives to people wanting to build a new home.
But COVID caused major shortages in construction materials and the industry has also been grappling with a labour shortage in a low unemployment market.
It has seen the timeline for a lot of new construction projects blow out.
"It's been very, very tough," Mr Afzal said.
"We are paying the mortgage, we're paying the rent, plus the bills for both properties."
Mr Afzal estimates they are sacrificing 70 per cent of their income on housing right now.
Couple forced to move in with parents
It is a familiar story for nurse Steryn Wheeler.
She was told a build would take six to eight months.
A year and a half after signing the contract, she and her partner have had to move in with her parents amid a rental crisis while they wait for their home to be finished.
She is anxious about rates going up even further.
"You just get really nervous … especially being in my mid-20s, you know, the future of like, are we going to have children?" she said.
"We can't really do that with these sort of price increases."
Ms Wheeler now regrets locking herself into building a home, and she knows many other young people in the same boat who bought during the pandemic.
"I think we got so caught up in wanting to have the grants and to be independent and have an adult lifestyle that we kind of forgot what at our core, we really wanted in our 20s," she said.
"We don't have anywhere to go from here. We're stuck with these houses and these huge interest rates."
Loans up, prices up
Australian Bureau of Statistics (ABS) data shows there was an uptick in first homebuyers during the pandemic.
The amount people borrowed on average also increased over the previous two-and-a-half years.
ABS data shows average loans rose from $504,000 in January 2020 to $611,000 in June this year.
Digital Finance Analytics principal analyst Martin North said many first time buyers got into the market to take advantage of the government's home-builder incentives.
But those incentives also helped drive up prices.
"They tended to have bought with very large mortgages they bought at the top of the market, and now there's a pincer movement going on," Mr North said.
"Rates are going up, mortgage rates are going up, prices are beginning to slide back. And a lot of them are actually [now] in financial flow difficulty."
Mr North said while banks were not reporting higher rates of defaults, cashflow indicators showed where people were starting to struggle.
Young families under stress
His analysis of June figures shows more than 80 per cent of young growing families with a mortgage are facing mortgage stress — that is, paying more than 30 per cent of their income on housing.
He also warned two and three-year fixed-term loans from people enticed by pandemic prices grants would start to expire later this year and early next year.
"In some cases, they're going up from a mortgage rate of 1.99 per cent, to about 4.5 per cent, so that's a really big move," Mr North said.
March quarter data (the latest available) from the Australian Prudential Regulation Authority (APRA) shows residential loans 30 to 89 days past due totalled $8.9 billion nationally.
That was a slight rise on the previous quarter but still trending lower than the previous two years.
Genworth Insurance, which estimates it dominates about 40 per cent of Australia's lenders mortgage insurance market, warned investors in June that rising interest rates and moderating house prices were expected to lead to higher delinquencies and claims.
Mass defaults 'unlikely'
But not all analysts believe Australia should brace for a wave of defaults by first homebuyers and other households experiencing financial stress.
Curtin University Australian Housing and Urban Research Institute director Stephen Rowley said while Australia's employment market remained strong, he did not expect to see a big increase in default rates.
"Defaults are triggered by life events, such as a relationship breakdown and illness, often loss of employment," Dr Rowley said.
"Otherwise, households tend to concentrate their expenditure on housing costs and tend to pull back on discretionary expenditure.
"If we did get rising unemployment, and people were struggling to generate the sort of income they need, then it could be a problem."
But he predicted delays in the construction of new homes would see people reluctant to enter that market in the next two or three years.
"That puts extra pressure on the established market and at the moment there's not a tremendous amount to buy … which is why we've seen a steady increase in prices over time.
"I think we're in a very difficult market at the moment … we've got a long way to go before we get back to what we regard as a sort of normal market where [there is] a bit of slack in the rental market and some decent supply."
