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Record Low Housing Affordability In December Quarter

11 March 2004

Housing affordability for first home buyers fell 8.4 per cent, reaching a record low in the December quarter of 2003, according to a report released today by the Commonwealth Bank and HIA.

Figures from the HIA/Commonwealth Bank Affordability Report indicate that housing was 23.7 per cent less affordable for first home buyers in the December quarter of 2003 than it had been a year earlier.

Among the capital cities, affordability fell furthest in Hobart (27.5 per cent*) in the last quarter of 2003. Adelaide recorded the smallest decline, of just 2.7 per cent.

Regional areas in most states also recorded a fall in affordability, with NSW falling furthest (9.8 per cent). The only exception was regional Western Australia, where affordability improved by 4.8 per cent.

Factors contributing to the record low in affordability included a 5.5 per cent rise in Australia’s median house price and a 0.5 per cent interest rate increase during the quarter.

Median house prices rose during the December quarter in all capital cities except Adelaide (down 0.7 per cent). Hobart recorded the biggest increase, with a median house price rise of 33.1 per cent*.

During the December quarter, regional median house prices grew in New South Wales (6.9 per cent), Queensland (6.0 per cent), Victoria (5.9 per cent) and Tasmania (4.7 per cent*), falling only in regional Western Australia (8.0 per cent) and South Australia (0.6 per cent).

Another key feature of the December quarter’s fall in affordability was an increase in the loan repayment on a typical first home loan, which rose by $177 to $1,917 – or 30.5 per cent of the average household income. By contrast, in the September 2003 quarter, repayments on a typical loan absorbed 27.9 per cent of the average household income.

Geoff Austin, Executive General Manager, Mortgages and Investments at the Commonwealth Bank, said the fact that affordability has hit a record low should alert potential first home buyers to the need to do their homework.

"Buying your first home is a big step and the responsibility doesn’t end once the ink is dry on the contract. First home buyers need to think carefully about the full impact that buying property will have on their financial situation," he said.

* = NB: All figures for Hobart, Canberra and regional Tasmania should be treated with caution because of small sample sizes in those areas.

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"Money saved towards the deposit and purchase costs on your home is money you don’t have to borrow from the bank, so your mortgage repayments will be lower and you’ll own more equity in your home from day one.

"It is always a good idea to think about what an interest rate rise or other unexpected cost increase will mean for you personally, before you buy a home. Consider all your home loan options and make sure you choose the home loan product that best suits your needs."

Simon Tennent, Chief Economist with Australia's peak building industry body HIA, said there is little on the horizon to suggest that affordability will improve in the short term.

"For first home buyers, the recent interest rate increases have put home ownership further out of reach. Buyers shouldn't hold their breath waiting for house prices to come down as there is still a continuing demand for housing across Australia," he said.

"We can’t rely on a market correction to improve housing affordability. There need to be supply side reforms to the levying of fees, taxes and charges on new development, as well as a more coordinated and responsive approach to residential land releases in capital cities."

HOUSING AFFORDABILITY INDEX, AUSTRALIA

Quarter

Median first home price

Interest rate

Monthly

payment

Average annual household income

Qualifying annual income

Housing

Affordability

Index

Total

Disposable

Total

Disposable

$

%

$

$

$

$

$

$

2001

Dec

210,100

6.05

1,088

71,000

65,400

43,500

40,100

163.1

2002

Mar

222,700

6.05

1,153

71,600

65,900

46,100

42,400

155.4

 

Jun

229,400

6.55

1,245

71,700

65,400

49,800

45,400

144.1

 

Sep

244,800

6.55

1,328

71,900

65,400

53,100

48,300

135.4

 

Dec

259,400

6.55

1,408

72,500

65,800

56,300

51,100

128.8

2003

Mar

259,600

6.55

1,409

73,000

65,700

56,400

50,800

129.3

 

Jun

291,300

6.55

1,581

73,200

66,300

63,200

57,200

115.9

 

Sep

320,700

6.55

1,740

74,700

67,600

69,600

63,000

107.3

 

Dec

337,500

7.05

1,917

75,400

68,300

76,700

69,500

98.3

 

 

REGIONAL AREAS (percentage change)

 

September quarter 2003 to December quarter 2003

December quarter 2002 to December quarter 2003

 

House price

Affordability

House price

Affordability

New South Wales

+6.9

-9.8

+40.3

-29.1

Victoria

+5.9

-8.7

+26.6

-21.4

Queensland

+6.0

-9.2

+37.1

-27.5

South Australia

-0.6

-2.9

+14.1

-12.8

Western Australia

-8.0

+4.8

-2.4

+2.0

Tasmania

+4.7*

-8.0*

+46.9*

-32.5*


 

Regional highlights and a table of capital city changes in affordability and median house prices are included on page three of this release.

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Regional highlights:

Last quarter, affordability fell most in regional New South Wales and increased in regional Western Australia. During the quarter, house prices rose most in regional New South Wales, but fell in regional Western Australia and regional South Australia. In the year to the December quarter of 2003, regional Tasmania* had the biggest drop in affordability and the biggest increase in median house price, while regional Western Australia’s affordability rose and median house price fell.

CAPITAL CITIES (percentage change)

 

September quarter 2003 to December quarter 2003

December quarter 2002 to December quarter 2003

 

House price

Affordability

House price

Affordability

Sydney

+2.4

-5.8

+18.0

-15.8

Melbourne

+6.7

-9.6

+23.4

-19.4

Brisbane

+6.0

-8.9

+44.5

-31.2

Adelaide

-0.7

-2.7

+19.6

-17.0

Perth

+4.5

-7.7

+31.9

-24.7

Hobart

+33.1*

-27.5*

+67.5*

-40.7*

Canberra

+23.2*

-21.6*

+49.8*

-33.6*


 

 

Capital city highlights:

Last quarter, affordability fell most in Hobart* and least in Adelaide. During the quarter, house prices rose most in Hobart* and fell in Adelaide. In the 12 months to the December quarter, Hobart* recorded the biggest drop in affordability and Sydney the smallest. Sydney’s median house price rose least over the year, and Hobart’s* most.

* = NB: All figures for Hobart, Canberra and regional Tasmania should be treated with caution because of small sample sizes in those areas.

 

Note to Editors

The HIA / Commonwealth Bank Affordability Report uses Commonwealth Bank house price data to measure the ratio of average household disposable income to the qualifying income required to meet payments on a typical dwelling.

For a full copy of the HIA/Commonwealth Bank Affordability Report, please visit http://research.comsec.com.au (select ‘Economics’ on the left hand menu) or www.buildingonline.com.au

The Commonwealth Bank is Australia’s biggest home lender with over 1.1 million home loan customers.

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