What is Affecting Housing Affordability?

By Peter Sarmas on 26 Aug 2013
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If you’ve attended a property auction in either Melbourne or Sydney in recent weeks, you may have raised an eyebrow at the high prices some properties are fetching when the gavel falls.

Indeed, data from Australian Property Monitors’ recent quarterly housing market report revealed that Melbourne’s median house price jumped 5 per cent over the three months to June, to $553,447 – the strongest price growth of all the capital cities.

Results like this have lead some financial analysts to speculate that another housing boom is just around the corner. The truth is, housing affordability conditions in Australia are among the best we’ve seen for decades.

Here are the three reasons why. 

The Price of Dwellings

While the Melbourne housing market has shown encouraging signs of a recovery in recent months, house prices in the Garden State are still sitting -1.4 per cent below their peak in June 2010 of $561,000. This means houses are, in general, cheaper to purchase than they were three years ago.

The Cost of Borrowing

This is perhaps best reflected by the level of interest rates. As it currently stands, the official cash rate set by the Reserve Bank of Australia is sitting at its lowest level on record at just 2.50 per cent.

The big four banks have also brought down their standard variable mortgage rates to about 5.95 per cent from their 2011 peak of 7.8 per cent. This means today, the average monthly mortgage repayment on a $300,000 mortgage is around $350 cheaper when compared to interest rate levels two years ago.

Homeowners may also be able to achieve even greater savings with a smaller lender. Some online mortgages are currently carrying a comparison rate as low as 4.62 per cent (UBank).

Family Income

The third influence on housing affordability is the disposable family income. According to the Australian Bureau of Statistics Biannual Wealth and Income survey released last week, the average wealth of Australian households in 2011-12 was $728,000, 9 per cent higher than it was in 2005-06, and 24 per cent higher than in 2003-04.

“The ACT had the highest level of wealth at $930,000 which was around 28 per cent higher than the Australian average. Western Australia, New South Wales, Victoria and the Northern Territory all had levels of wealth close to the Australian average,” said the survey.

Real estate commentator, Terry Ryder said Australia’s high income has contributed to housing affordability improving over the past eight quarters.

“New figures from the Australian Bureau of Statistics suggest an average 5 per cent rise in wages in the past 12 months. That’s a rise larger than the median price rise over the past year in five of the eight capital cities.”

Buyers on the prowl will find a number of suburbs in Melbourne where wages are rising at a faster rate than property prices.

For example, in Footscray, the average household income for the suburb rose by 41 per cent over the past five years, while house prices climbed by just 12.7 per cent. In Maidstone, the average household income rose by 46 per cent compared to the suburb’s house price, which climbed by 13.8 per cent over the same period.

If you are thinking of buying selling or investing and would like a FREE 5 minute chat
with Street News Director Peter Sarmas, please contact him on 0418 740 606
or via email at [email protected]

About the Author

Peter Sarmas is a Certified Property Investment Advisor (PIAA) and Vendor/Buyer Advocate. Before becoming the founder of Street News, Peter completed a Degree in Applied Science (Chemistry) and a Graduate Diploma in Property Valuations (Hons). Peter believes property investing is a major and potentially risky undertaking. In his view, everyone should have an independent person acting on their behalf when seeking property investment advice.

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