Lower interest rates and a slowing pace of house price growth have pushed housing affordability to its most favourable level in 12 years, according to the latest Housing Industry Association-CBA Housing Affordability Index.
An improvement in the index for the March quarter shows that housing is 10.8 per cent more affordable than a year ago. This was driven by improvements in affordability in Sydney, Perth and the ACT, while the Melbourne market remained unchanged.
Affordability – a measure of house prices to average incomes – deteriorated in Adelaide, Hobart and Brisbane over the quarter.
“Increases in home prices over the past year have been significant,” HIA senior economist, Shane Garrett, said on Wednesday. “However, the impact of lower interest rates and continued earnings growth has ensured that home purchase affordability has improved over the past year for existing homeowners and those on the cusp of entering the market in the short term.”
A decline in the index for new housing in the quarter, however, showed that affordability of new housing was less favourable than that of existing houses. Three of the six regional markets – Western Australia, NSW and South Australia – saw affordability improve during the quarter, while it deteriorated in Tasmania, Queensland and Victoria.
Overall, the likelihood of continued low interest rates was a good sign, Mr Garrett said. “As home price pressures ease off, we expect homeowner affordability to remain reasonably favourable for the foreseeable future.”
Greater supply of housing remained the key to longer-term affordability, Mr Garrett said.
““Ensuring adequate and affordable housing for those harbouring aspirations to one day enter the home-ownership market and for the large number of rental households in Australia requires a concerted policy focus on boosting new housing supply,” he said.