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Housing affordability comparable to 1999 levels

Descending house prices, income growth and lower interest rates are among the factors that have contributed to improvement in housing affordability, according to the HIA. 

According to the Housing Industry Association’s (HIA) Affordability Index, which takes into account house prices, mortgage interest rates and wage developments, housing affordability in the June 2019 quarter is comparable with the level seen in 1999, despite house prices rising faster than incomes over the last two decades. 

Geordan Murray, HIA senior economist, said the main reason for the improvement in affordability is lower interest rates. 

“Interest rates are 4.6 per cent today compared with 6.7 per cent in 1999,” Mr Murray said. 

“For a home buyer with an average income purchasing a median-priced dwelling (assuming a 10 per cent deposit), mortgage repayments will consume the smallest proportion of their earnings since 1999.”

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The economist noted that average earnings have risen 113 per cent over the last 20 years, while median house prices surged 228 per cent. 

“The lower interest rates have kept the cost of servicing a loan the same,” Mr Murray said. 

Housing affordability improved in all eight capital cities in the June 2019 quarter.

Darwin saw the greatest improvement, with its affordability index rising by 4.8 per cent in the April-June quarter, followed by Melbourne (+3 per cent), Perth (+2.6 per cent), Brisbane (+2.6 per cent) and Sydney (2.4 per cent). 

The lowest improvement was seen in Canberra (+2.4 per cent), Hobart (+2.2 per cent) and Adelaide (+1 per cent). 

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“Despite a significant improvement in affordability, Sydney remains the least favourable market in the country, requiring 1.8 times the average income to service a mortgage on a typical Sydney home,” Mr Murray said.

The HIA senior economist noted that there are a number of recently introduced or emerging initiatives that have not fed into the Affordability Index but are expected to help first home buyers enter the property market. 

“The reduction in income tax, the easing of APRA restrictions on mortgage lending and the Australian government’s First Home Loan Deposit Scheme are likely to be important considerations for households,” Mr Murray said. 

[Related: Improvement in housing affordability at six-year high]

Housing affordability comparable to 1999 levels
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