Housing affordability at 20-year high

by Madison Utley12 Jul 2019

Mortgage repayments currently consume the smallest proportion of borrower income since 1999, according to HIA’s Affordability Index - and there are a number of factors at play.

“The combination of lower home prices, improvements in wage growth and lower interest rates have contributed to the ongoing improvement in the June 2019 quarter,” said Geordan Murray, HIA Senior Economist.

The index considers dwelling prices, mortgage interest rates and wage developments across the eight capital cities and regional areas on a quarterly basis.

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

The economist explained that despite house prices rising significantly faster than incomes since then, interest rates are 4.6% today compared to 6.7% in 1999.

“Average earnings have increased by 113% over the 20 years to 2019, while the median home price has increased by 228%, but the lower interest rates have kept the cost of servicing a loan the same,” he continued.

Murray acknowledged there are several initiatives underway to help first home buyers enter the market that weren’t factored into the index.

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

Each of the capital cities saw an improvement in the affordability index over the quarter to June 2019. Darwin’s index was up by 4.8%, Melbourne by +3.0%, Perth by +2.6%, Brisbane by +2.6%, Sydney +2.4%, Canberra +2.4%, Hobart +2.2% and Adelaide +1.0.

“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,” noted Murray.