Housing affordability improves as home prices edge higher

August 25, 2011 - 12:18PM

There’s good news for house hunters with lower mortgage rates and higher wages helping to improve affordability even as house prices edged higher.
A separate report, meanwhile, shows that people are staying put longer, underscoring how the property market has cooled in recent years.
The Housing Industry Association-Commonwealth Bank housing affordability index rose by 0.8 per cent in the June quarter, to 56.2 from 55.7 per cent.

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Lending data from CBA, used in the index, showed an 0.8 per cent increase in the April-June period of Australia’s median home price to $471,400.
“Earnings growth and a small decrease in mortgage lending rates worked to improve housing affordability over the June 2011 quarter,’’ said HIA senior economist Mr Andrew Harvey. ‘‘These factors more than offset a small increase in the median house price.’’
Other recent reports point to stagnating or falling home prices in many regions around the country as concerns about the wider economy deter some people from the property market.
Still, unemployment levels remain low, at just above 5 per cent, and commercial banks have been trimming their fixed-term mortgage rates in recent weeks.
The Reserve Bank may also cut its key cash rate in coming months to reflect softening demand in the economy and reduced inflation risks
“Improved affordability is good news for home buyers,’’ said Mr Harvey. ‘‘If we look through the (global financial crisis) period which was skewed by unprecedented cuts to interest rates, we have not seen affordability reach its current level since 2006.’’
The home prices used in the HIA/CBA index are median loans financed by the Commonwealth Bank.
"They cannot and do not take account of changes in the mix of size, location and quality of dwellings financed," the report said.
"Quarter-to-quarter variations therefore reflect any changes in the composition of housing financed, as well as changes in the price of a dwelling of a given size, location, and quality.
Home price trends
By most measures, however, home prices have been sinking in the new year. RP Data-Rismark information shows capital city home prices down 2 per cent in the year to June, on a seasonally adjusted basis. Home prices fell 0.2 per cent in June, according to RP Data-Rismark.
Borrowing for and building homes has slowed in 2011 while affordability remains constrained for many would-be buyers.
The pace of building has stalled amid uncertainty about the economy and about the direction of interest rates to come. Residential construction work fell by 4.1 per cent in the June quarter to $11.4 billion, the Australian Bureau of Statistics said yesterday.
The RBA will meet September 6 to decide on interest rates, with the market currently pricing in a 55 per cent chance of a 25 basis point cut.
Staying put
The slowing conditions in the property market, combined with higher transaction costs, are also keeping Australians in the same home longer, RP Data said today.
In 2001, the average hold period for a property between sales was 6.8 years. Now, it is 8.6 years, RP Data said today, with Melbourne residents the slowest to leave. By Chris Zappone

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