14/09/2004 - 22:00

Prices up, affordability down

14/09/2004 - 22:00

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Recent data from the Australian Bureau of Statistics have further supported industry assertions that the real estate market is stabilising after a sustained period of growth, and is in positive territory, despite a decline in affordability.

Prices up, affordability down

Recent data from the Australian Bureau of Statistics have further supported industry assertions that the real estate market is stabilising after a sustained period of growth, and is in positive territory, despite a decline in affordability.

Although Perth’s median house price has decreased over the past quarter, from $242,800 to $242,400, this is still 14.4 per cent higher than the same period last year.

The ABS data also indicate a 1.7 per cent increase in home loan numbers in July 2004, accounting for almost 14 per cent of all lending in the country.

The average price for established homes rose 2.1 per cent in the past quarter, which contributed to a 14.6 per cent increase over the same period last year.

The first home buyer market has strengthened since stamp duty concessions were introduced in July, with 3,610 people applying for first home owner grants in July and August, compared with 2,795 for the same period last year, an increase of 30 per cent.

Despite the increase of first-home buyers, Perth’s home loan affordability indicator declined 3.3 per cent to its lowest level in eight years.

According to the Real Estate Institute of Australia (REIA) president Kareena Ballard, the decline in affordability is mainly the result of an increase in the average size of home loans and monthly repayments to service the loan, compared with a very small amount of growth in weekly family income.

“The average size of a new home loan in Western Australia increased by 4.1 per cent to $176,408, but median weekly family income in the State increased by just $6 to $1,071,” Ms Ballard said.

“This means the portion of family income devoted to meeting average loan repayments rose from 24.4 per cent to 25.2 per cent.”

New South Wales remains Australia’s least affordable State, with median house prices at $520,000 and the average mortgagee contributing 38.4 per cent of their income to home loan repayment.

Ms Ballard was concerned that affordability was continuing to decline, even though interest rates had remained stable in the first half of 2004 and growth in house prices had slowed.

“Australia’s enviable record of home ownership is under threat unless the problem of affordability is taken seriously by government,” she said.

Real Estate Institute of Western Australia president Jim Henneberry said affordability was another way of measuring what percentage of a family’s budget went towards housing.

“It doesn’t matter if your income is $400 or $4,000 per week, affordability is irrespective of income,” he said.

“However, the amount spent on housing generally should not exceed 30 per cent of a family’s income – anything above that figure is considered to be more than normal, and represents a heated market.

“Western Australia is very well placed by comparison to places like Sydney, and is well within the safety margins of affordability.”

First-home buyers are the first to drop off when affordability decreases, according to Mr Henneberry, which causes a stalling effect through the rest of the market.

“Home buyers usually represent about 25 per cent of the market, and before tax changes were announced, they were representing about 13 per cent,” Mr Henneberry said.

“However, with the new tax changes recently implemented, the first home buyer market is back, which has in turn stimulated a domino effect up the ladder of home buyers.”

Housing Industry of Australia’s director (WA) John Dastlik said that, although the Perth market had not reached the overheated levels of other States, and as such remained a good prospect, affordability remained an important issue.

“Declining housing affordability is of concern as, for every small increase in price, more and more families are priced out of home ownership,” he said.

“For the immediate future, the price cycle will depend on the interplay between the negatives of high household debt, rising interest rates and spooked property investors versus solid fundamentals of population growth, record low unemployment, high consumer confidence, and a building industry that is only just keeping up with demand for new housing.”

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