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"Another severe blow was dealt to home buyers in the December quarter 2007, with interest rate rises biting hard and home loan affordability deteriorating across Australia, except in Western Australia," says Noel Dyett, President of the Real Estate Institute of Australia, in Canberra.
The proportion of family income required to meet average home loan repayments rose to 37.4 per cent in the December quarter 2007, the highest level reached during the 22 years that REIA has recorded home loan affordability data.
REIA data relates to all new home loans in a quarter, and excludes refinancing.
Keith Levy, National Manager, Deposit Power believes that despite record income and employment levels, the rising costs of food and petrol combined with interest rate rises have left consumers with little spending power.
"Even though family income and national employment are at record levels, competitive pressures within the mortgage industry have left many people with debts that they may not be capable of maintaining," he said.
Five of the States and Territories have recorded the highest proportion of income ever needed to meet loan repayments this quarter, while Tasmania recorded its second highest proportion and the Australian Capital Territory recorded its third highest proportion.
"As the published data relates to the December quarter 2007, it does not take into account the February 2008 interest rate rise. While there are expectations of further interest rate rises during 2008, this is unlikely to have a significant dampening effect on house prices, because of the ongoing shortage in housing stock which continues to put upward pressure on prices. It is therefore likely that home loan affordability will continue to worsen during 2008," says Noel Dyett.
"Measures announced by the Government to address affordability are welcome, but will not have immediate effect. Buyers can expect the pain to continue for some time. Government should act immediately to provide more assistance to first home buyers, by increasing the First Home Owners Grant.
"For those caught in the rental market as a home purchase moves out of reach, or for those who make an economic choice to rent rather than buy, newly published REIA data on rental affordability is also not a source for optimism," Dyett concluded.
Overall in Australia, renting families required 23.9 per cent of their median family income to meet rent payments in the December quarter 2007. This compares with 22.4 per cent of family income required for rent in December 2006, and 23.3 per cent in September 2007.
Renters in Tasmania are in the worst position, requiring 28.4 per cent of family income to meet rent payments in the December quarter 2007. This is because the Tasmanian median income is the lowest in Australia, yet rents are relatively high at $280 per week for the December quarter.
Renting in Darwin is now more expensive than buying. The proportion of family income required to meet rent payments is 26.1 per cent, compared with 23.3 per cent required for home loan repayments. Darwin rents are the highest in Australia.
"Again,the clear message is that more housing supply is needed to ease financial and social stress, particularly at a time when other basic necessities in life are increasing in price," says Noel Dyett.
For further information or comment, call: Alison Verhoeven REIA Public Affairs Manager CANBERRA 0403 282 501
BACKGROUND INFORMATION: DECEMBER 2007
* Australia
Borrowers now need 37.4 per cent of family income to meet average loan repayments. Home loan affordability deteriorated by 2.2 per cent over the quarter and by 6.3 per cent over the year. Renters required 23.9 per cent of their income to meet rent payments.
* New South Wales
New South Wales is Australias least affordable location, with 39.8 per cent of family income required to meet average loan repayments. Affordability declined by 3.8 per cent over the quarter and by 7.0 per cent over the year. Tenants put 24.8 per cent of their income towards rent.
* Victoria
Victorians required 36.2 per cent of family income to meet average loan repayments in the December quarter. Home loan affordability fell by 3.8 per cent over the quarter and by 5.5 per cent over the year. Renters spent 20.6 per cent of their income on rent.
* Queensland
Queenslanders required 38.7 per cent of family income to meet average loan repayments in the December quarter. Home loan affordability fell by 1.9 per cent over the quarter and by 6.5 per cent over the year. Families needed to set aside 25.1 per cent of their income to meet rent payments.
* South Australia
In South Australia, 35.7 per cent of family income is required to meet loan repayments. Home loan affordability fell by 2.8 per cent over the December quarter and by 10.8 per cent over the year. Renters spent 24.5 per cent of their income on rent.
* Western Australia
In Western Australia, 33.5 per cent of family income is required to meet average loan repayments. This was the only State that saw an improvement in affordability, due to smaller loans outweighing the interest rate rises in the December quarter. Home loan affordability rose by 3.8 per cent over the quarter and delined by 1.7 per cent over the year. The proportion of income to rental costs was 23.3 per cent.
* Tasmania
Tasmanians require 33.5 per cent of family income to meet average loan repayments. Home loan affordability fell by 2.0 per cent over the quarter, and by 2.9 per cent over the year. Tasmanian renters spent the highest proportion of their income on rent, at 28.4 per cent, compared with renters in other locations.
* Northern Territory
In the Northern Territory, 23.3 per centy of family income is now required to meet average loan repayments. Home loan affordability fell by 3.6 per cent over the quarter and by 7.9 per cent over the year. Darwin rents are the highest in Australia, with the proportion of median weekly family income required for rent now being higher than the proportion required to meet loan repayments, at 26.1 per cent of median weekly family income.
* Australian Capital Territory
In the ACT, 21.1 per cent of family income is required to meet average loan repayments. The ACT enjoys the highest median weekly family income in Australia of $2,228, compared with the Australian median weekly family income of $1,238. Home loan affordability fell by 2.1 per cent over the quarter, and by 6.7 per cent over the year. The proportion of rent to income was 16.6 per cent.
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