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Interest rate cuts improving home affordability

Interest rate cuts improving home affordability

Could homes across the country really be at their most affordable in recent years? A new report says they might be.

In what may come as surprising news to property owners and seekers in some capital cities, housing affordability has improved to its best level in seven years, a new report comparing income with home loans has found.

The proportion of the median family income needed to meet the average home loan repayment is now 29.4%, the lowest it has been since the June quarter in 2009, according to the latest quarterly edition of the Australia Housing Affordability Report from the Adelaide Bank and Real Estate Institute of Australia (REIA).

Over the past quarter, the national median weekly income increased by 0.5% to $1,659 a week while the average monthly home loan repayment fell 1.3% to $2,116.

The average home loan amount now sits at $369,390, a 2.7% rise compared to last year's June quarter.

The 29.4% figure is just below 30%, which, according to Damian Percy, Adelaide Bank general manager, "is the figure traditionally used as a measure of 'housing [or mortgage] stress'".

“Affordability improved through more favourable interest rates and modest increases in income,” says Neville Sanders, president of REIA.

“Most states and territories saw improvements in housing affordability. The only quarterly decline was seen in the Australian Capital Territory, while no change was recorded in New South Wales and Queensland.”

In May, the Reserve Bank of Australia cut the official cash rate to what was then a new historic low of 1.75%. It then cut the rate by a further 25 percentage points in August.

Which is the most affordable state?

Of the states and territories, the ACT remains the most affordable in which to buy a home even though it did record the only quarterly decline in housing affordability. The proportion of income needed to meet home loan repayments increased by 0.1% to 19.4%.

New South Wales is the least affordable state or territory to buy property, with average home loan repayments taking up 35.4% of the median income. Victoria is the second-least affordable state at 31% but recorded the greatest improvement in affordability over the quarter with a decrease of 1.7%.

First home buyers on the wane

Last week, CoreLogic reported that homes across the combined capital cities increased 1.1% in value over the last quarter, fuelled by heathly gains in Sydney and Melbourne. But even though home prices are generally increasing across the country, historic low interest rates appear to be encouraging buyers to enter the market. 

While lower rates are great news for all buyers, first home buyers still appear to be cautious about entering the market. The Adelaide Bank/REIA report found they currently make up 14.3% of the owner-occupier market.

“The proportion of first home buyers appears to be on a downward spiral and is at its lowest for over two decades,” says Sanders.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance. The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. The CBA Group does not accept any liability for losses or damage arising from any reliance on external companies and their products, services and material.