Interest Rate Increases Bite Hard

‘Australian Bureau of Statistics data shows a significant decline in the number of new building approvals following interest rate rises.  Without the additional housing stock urgently required to address Australia’s housing shortage, not only will home loan affordability suffer, but we can expect to see rental affordability reach new lows as well,’ Mr Dyett said.

Rents have increased, not only in nominal terms, but also in relation to income during the year to March 2008.  Overall in Australia, renting families required 24.7% of their median family income to meet rent repayments in the quarter.  This compares with 22.8% of family income required for rent in March 2007, and 23.9% in December 2007.

Renters in Tasmania continue to be in the worst position, requiring 29.5% of family income to meet rent payments in the March quarter 2008.  This is because the Tasmanian median income is the lowest in Australia, yet rents are relatively high at $295 per week for the March quarter.

Renting in Darwin is more expensive than buying, with the proportion of family income required to meet rent payments at 28.1%, compared with 23.0% required for home loan repayments.  Darwin rents are the highest in Australia with median rents for a 3 bedroom house increasing to $490 per week.

‘There is little prospect that rental affordability will improve in the short-term, particulary noting the downward trend in investor finance in response to recent interest rate rises combined with extremely tight vacancy rates in all capital cities,’ Mr Dyett said.

The proportion of household income required to meet average home loan repayments rose to 38.0% in the March quarter 2008, the highest level reached nationally during the 22 years that the REIA has recorded housing affordability data.  REIA data relates to all new home loans in a quarter, and excludes refinancing.

Queensland has replaced New South Wales as the least affordable State for new home loans.  Queenslanders now require 40.5% of median weekly family income to service the average new loan. 

Every State and Territory recorded a decline in housing affordability in the year to March 2008, with an overall national decline of 8.7%. New South Wales and the Northern Territory were the only locations to record an improvement in home loan affordability during the March quarter 2008.

Median house prices recorded significant decreases across most State and Territories during the March quarter 2008, resulting in the average loan size in Australia decreasing from $252,705 in December 2007 to $246,647 in March.  There was also a significant reduction in the total number of new loans issued in each State and Territory during the March quarter, perhaps an indication that people are re-considering their needs and financial position before purchasing a house.

‘Potential home buyers are now more educated and aware of how much they can afford to borrow to ensure they will be able to meet repayments, even if faced with possible interest rate rises,’ said Keith Levy, National Manager, Deposit Power.

‘There is likely to be a further decline in housing affordability in the June quarter 2008 as the impact of interest rate rises is fully felt,’ Mr Dyett concluded.

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Marc Pallisco

A former property analyst and print journalist, Marc is the publisher of