Housing affordability drops in face of rising values

Australians-are-paying-more-on-mortgage-repayments_157_6006092_0_14101800_300While the Australian construction industry marches to yet another year of strong activity, the Real Estate Institute of Australia (REIA) Housing Affordability Report shows that homes have become less affordable across the nation. This could indicate another strong year of capital growth for property investors, as demand for homes drives house prices even higher.

The Adelaide Bank commissions research into housing affordability on a quarterly basis and has found that, for another quarter, values are outstripping the level of income growth. This means that buyers are paying more on their mortgage repayments as a proportion of their annual income. While this news is not likely to offer much comfort to first time buyers, it could also signal that conditions are ripe for long term capital gains.

REIA CEO Amanda Lynch noted that declining affordability was common in every state and territory, but New South Wales remains as the least affordable state. CoreLogic figures show Sydney values alone grew 2.8 per cent over the last quarter and 13.7 per cent over the year to February 2015. As a result, Ms Lynch highlighted that affordability is now at its most unfavourable level since 2013.

Interestingly, housing affordability in Tasmania worsened considerably – the proportion of income to repay the mortgage rose 1.5 percentage points.

“The latest comprehensive data shows a drop in housing affordability nationally with the proportion of income required to meet loan repayments increasing by 1.1 percentage points to 31.5 per cent,” she said in a March 4 release.

“This means that more of a home owner’s salary is going into meet the mortgage payments than in the previous year.”

This reflects the steadily increasing home values that have characterised the Australian property market for some time now. The report also highlights that landlords are struggling to keep pace with rapidly rising house prices, as rental affordability improved nationwide. The proportion of income for rent payments improved 0.2 percentage points over the last quarter.

Renters will likely relish the news, but it likely emphasises that investors are focussing on long term gains over short term yields. Whatever your investment strategy in the face of rising prices, your local agent can help you find a property to suit your goals.

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