Housing affordability falls as house prices gain 1.4% during April

Housing affordability has continued to decline due to rising interest rates, the withdrawal of first home owner stimulus and strong price growth, according to the latest results from the HIA-CBA First Home Buyer Affordability Report.

The results come as new figures from Residex show housing prices have continued to rise during April, recording 1.4% growth for the month and 13.9% for the year.

The HIA report found affordability dropped during the March quarter by 4% to be 28.7% lower than 12 months ago. Affordability fell by 4.2% in the capital cities, and by 5.3% in regional areas, to be lower by 30.5% and 24.8% respectively, compared to March 2009.

The largest declines in affordability were found in Victoria, with 10% for Melbourne and 15.9% for regional areas, followed by Western Australia with a 6.6% decline for Perth and a 14.2% drop for regional areas. Additionally, regional New South Wales affordability dropped by 12%.

The survey found the monthly loan repayment needed on a typical first-home mortgage increased from $2,504 to $2,629, a rise of 5%.

The report also found monthly mortgage repayments accounted for 25.3% of total first home buyer income, but this was still lower than the 28% peak recorded in the March 2008 quarter.

Ben Phillips, HIA senior economist, says the result was expected and affordability will only become worse this year as interest rates rise and housing prices continue to record strong growth, despite any moderation.

“Higher interest rates, the first home buyers grant dropping away, higher prices, all of these factors combine and it’s not surprising to see that affordability will decline or worsen as a result,” he says.

“We do expect these results to get worse. We know there have been two interest rate rises since these results, so undoubtedly in the next quarter we’ll see some worsening results. It’ll come down to where interest rates are at the end of the year, but 2010 will be a bad one for affordability.”

Phillips says price decreases are unlikely through the rest of the year, and points to housing finance figures which indicate a higher proportion of upgraders are taking up the slack from first home owners.

“I think you’ll see upgraders or trade-up buyers are a stronger part of the market now. I do think we’re going to see more moderated growth this year, but certainly not decreases of any kind.”

Meanwhile, new figures from Residex show housing prices have continued to gain momentum even though activity from buyers is dropping away due to higher interest rates.

Prices grew by 1.4% across the country during April, following a 1.5% gain in March, while prices are up by 13.9% for the year.

Melbourne once again recorded the highest increase at 7.7% for the three months to April, and 22.5% for the year, while Sydney recorded 1.6% for the month and 17% for the year.

Adelaide recorded 1.3% for the quarter and 7.5% for the year, while Brisbane and Perth actually saw decreases for the first four months of the year of 1.6% and 0.4% respectively. However, prices are still up by about 5% from a year ago for both cities.

Median prices are still high, with Sydney at $651,500, followed by Melbourne at $580,500, Darwin at $513,000, Canberra at $512,500, Perth at $483,500 and Brisbane at $464,000.

Adelaide’s median price was $406,000, followed by Hobart at $373,000. Westpac economist Matthew Hassan said in a statement the figures represent solid increases, but do not account for interest rate rises from late last year.

“The April data is still too early to gauge the full impact of the cumulative 150bp rise in the official cash rate since September last year.”

“However, following the solid Q1 price performance recorded across all measures it clearly shows housing markets were carrying strong momentum early in the year despite initial rate rises and cooling first home buyer demand.”