Housing affordability stagnant as prices and salaries tread water

Housing affordability improved by just 0.1 percentage points over the September quarter as the RBA held firm on interest rates and house prices and salaries tread water.

Nationally, the proportion of family income needed to meet home loan repayments reduced from 31.9% to 31.8% over June, July and August, according to the latest quarterly Real Estate Institute of Australia/Adelaide Bank Housing Affordability Report.

There was a similar, small improvement in rental affordability with 24.4% of family income required to meet monthly rental payments over September compared with 24.5% in the June quarter.

REIA president Pamela Bennett notes that “unfortunately the earlier [RBA cash rate] cuts in May and June haven’t stimulated the market quite as hoped” but said the slight improvement was cause for “continued quiet optimism”.

Adelaide Bank general manager Damian Percy said with the average loan size of new lending commitments now at $320,542 and average monthly loan repayments up slightly to $2,176, or $544 per week, “the current low interest rate environment is encouraging many people to re-visit and weigh up the ‘buy vs rent’ equation”.

“Certainly there are many desirable parts of Australia where it is now cheaper to buy and make loan repayments than it is to rent, particularly in blocks of older apartments. This can also be the case for those prepared to take on houses in outer ring suburbs and regional areas that have been ‘let go a bit’ and would see you racking up the frequent flyer points on the weekends in those multi-aisle hardware megastores,” Percy says.

On a state-by-state basis, only three states recorded an improvement in housing affordability over the quarter, led by NSW where the proportion of family income required to meet mortgage repayments declined by 0.9 percentage points from 37.4% to 36.5%, though it remains the least affordable housing market in Australia.

Affordability also improved in Queensland (by 0.5 percentage points to 30%) and in the Northern Territory (0.8 percentage points to 22.1%).

The biggest fall in housing affordability was recorded in the ACT with the proportion of income required to meet home loan repayments in the Australian Capital Territory rising 1.6 percentage points over the quarter to 18.9%.

However, the ACT remains the most affordable market due to the high salaries paid to its mainly civil servant working population.

The report also notes that the ACT’s rents are amongst the highest in the country at $460 per week for a three bedroom house, and $440 for two bedroom other dwellings.

“However, due to a higher average income, over the quarter rental affordability improved with the proportion of income required to meet median rent repayments decreasing 0.3 percentage points to 15.7%,” says the report.

Housing affordability declined marginally in Victoria with the proportion of income required to meet loan repayments increasing by 0.3 percentage points to 32.1% with declines also recorded in South Australia (up 0.6 to 32.6%), WA (0.1 to 23.4%) and Tasmania (0.6 to 26.1%).

The Northern Territory presents the most compelling case for renters to consider buying with the improvement in housing affordability contrasting with the territory recorded the steepest decline in rental affordability with the proportion of income required to meet median rents increased 1.3 percentage points to 24.9%.

For the September quarter, first-home buyers made up 19% of the market, compared with 17.9% in the June quarter and the new financing commitments to this group increased 6% over the same period.

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