RENTAL and home loan affordability have detoriated further in the March quarter as renters and buyers alike continue to feel the fallout from consecutive interest rate rises.
According to the Deposit Power/REIA March quarter 2008 Housing Affordability Report, home loan affordability deteriorated by 1.5% over the quarter and by 8.7% over the year.
Borrowers now need 38.0% of family income to meet average loan repayments – the highest level during the 22 years that the REIA has recorded housing affordability data.
Meanwhile, renters required 24.7% of their income to meet rent payments. This compares with 22.8% of family income required for rent in March 2007, and 23.9% in December 2007.
REIA’s president Noel Dyett said the 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.
“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,” Dyett said.
In New South Wales, 39.3% of family income was required to meet average loan repayments. Affordability improved by 1.2% over the quarter due to smaller loans and higher wages, but decresed by 9.0% over the year. Tenants put 25.4% of their income towards rent.
In Victoria, 37.1% of family income was required to meet the average loan. Home loan affordability fell by 2.2% over the quarter and by 9.7% over the year. Renters spent 21.8% of their income on rent.
Queensland is Australia’s least affordable state, Queenslanders need 40.5% of family income to meet average loan repayments. Home loan affordability fell by 4.3% over the quarter and by 11.2% over the year. Families needed to set aside 26.5% of their income to meet rent payments.
Meanwhile, South Australia has seen the largest deterioration of home loan affordability anywhere in Australia over the past 12 months falling 15.3% over the year, and 2.9% over the quarter. The proportion of family income required to meet loan repayments increased from 35.7% in the December quarter 2007 to 36.8% in the March quarter. Renters spent 25.5% of their income on rent, up from 24.5% in December quarter.
In Western Australia, 34.0% of family income is required to meet average loan repayments. WA was one of only two states that recorded an increase in the size of new loans during the March quarter. Home loan affordability decreased by 1.3% over the quarter and 0.7% over the year. The proportion of income to rental costs was 22.5%. WA was the only state or territory that recorded an improvement in rental affordability during the March quarter.
Tasmanians require 35.3% of family income to meet average loan repayments. Home loan affordability fell by 5.0% over the quarter, and by 8.7% over the year. Tasmanian renters spent the highest proportion of their income on rent, at 29.5%, compared with renters in other locations.
In the Northern Territory, 23.0% of family income is now required. Home loan affordability improved by 1.4% over the quarter, but decreased by 0.7% 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 28.1% of median weekly family income.
In the ACT, 22.4% of family income is required to meet average loan repayments. The ACT still enjoys the highest median weekly family income in Australia with $2,205, however, this is a 1.0% decrease from previous quarter income of $2,228. Home loan affordability fell by 5.5% over the quarter, the steepest largest decline of any State or Territory, and by 14.0% over the year. The proportion of rent to income was 17.5%, still the lowest in the country.
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.
Deposit Power’s national manager Keith Levy said this is 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,” he concluded.
Australian Property Journal
