Housing affordability falls to lowest recorded index as home loans rise and house values defy gravity
24/01/2012 
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Accumulative home loan mortgage interest rate rises, coupled with higher home prices around Australia have pushed housing affordability to its lowest level on record.
The Commonwealth Bank of Australia – Housing Industry Association (HIA) Quarterly Review of Housing Affordability for the September quarter showed the index falling 2.1 per cent to be 8.3 per cent lower than in the corresponding period in 2006.
The HIA today said housing affordability had reached its lowest level since the series began in 1984.
Established house prices rose by 11.4 per cent during the past year and were a major cause of loan repayment rises for first home buyers.
“It is unacceptable that a typical first home buyer would have to place themselves in mortgage stress to purchase a home,” said Ron Silberberg, Managing Director of HIA.
The HIA said a first-home buyer earning an average household income of $98,000 a year would have to commit 31.7 per cent of their income to buy a home, the highest on record.
Cost burden rises
The official cash rate is 6.5 per cent, and variable home lending rates are set at 8.3 per cent.
Australians have been slapped with nine interest rate rises in the last five years and home loan interest rates sit at a 11-year high after the most recent rise in August.
The steady yet relentless rise in interest rates in Australia over recent years is a prime candidate to explain why housing has become less affordable, according to a recent Macquarie Bank report on housing.
Macquarie expects the Reserve Bank of Australia (RBA) to increase interest rates by a 25 basis points this year or next and possibly by more.
“If growth remains strong and the RBA remains alert to potential inflationary pressures, interest rates could rise by another 75 basis points,” say the report authors Brian Redican and Hayden Atkins.
“Should the RBA be compelled to tighten policy to address rising inflationary pressures, housing affordability would deteriorate significantly to the worst levels since in the early 1990s,” Macquarie says.
Westpac chief economist Bill Evans said yesterday strong growth and inflation pressures would push the Reserve Bank of Australia to raise interest rates by 50 basis points in coming months.
“Our view is that rates are likely to rise by 0.25 per cent by the end of the year … further out we expect that even if there is a short term reprieve we are still likely to see the overnight cash rate higher by 0.5 per cent from its current level in the first half of 2008.”
A recent home loan survey found a quarter of lower income earners who were paying off a home used 60 per cent or more of their income on home loan repayments alone.
More than one in eight borrowers, or 13 per cent, thought that their mortgage was worth more than their home.
Source: news.com.au
Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers.
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