Interest rate cuts needed to recover transaction volumes

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The latest Housing Industry Association-Commonwealth Bank (HIA-CBA) housing affordability index report shows improvements across all geographical areas analysed, but an HIA economist says an early December interest rate cut is still needed to improve transaction volumes.

According to the report, the HIA-CBA housing affordability index rose by 5.3% in the September quarter, up by 15% over the same quarter in 2011.

HIA chief economist, Harley Dale, says this is the seventh consecutive quarter where there’s been an improvement in the headline affordability index.

Of the six capital cities analysed, Brisbane showed the greatest level of improvement, with an affordability index of 68.5, up from 56.8 this time last year.

Dale says that, after Brisbane, Melbourne improved the most (63.6 up from 53.7), followed by Hobart (78.3 up from 68.8) , Adelaide (71.1 up from 63.6) and Perth (64.1 up from 58.4), respectively.

Sydney improved the least at 54.2, up from 50.0 in the 2011 September quarter.

“Housing affordability has been improving on the back of steadily growing incomes, falling interest rates and easing dwelling prices.”

At the same time, Dale warns that transactions volumes have remained low as economic uncertainty weighs heavily on households’ willingness to engage in the residential property market.

“Tentative signs of a recovery in transactions volumes should hopefully gather legs – another interest rate cut in early December would enhance the prospects of this occurring.”

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