Affordability improves: and more good news to come

Posted on 24/10/2008  

Affordability for first-home buyers improved 3% in the September Quarter - with more good news to come, because the result does not factor in the recent big cut in interest rates.

The HIA-CBA Affordability Index found that a drop in prices and a rise in incomes combined to produce an improvement in affordability for the second consecutive quarter. Affordability is now better than it was in the December Quarter last year.

Affordability improved in Sydney, Melbourne, Adelaide, Hobart, regional Queensland, regional South Australia and regional Tasmania.

The index for the current quarter will show further improvement because it will include the impact of the October interest rate cuts and quite possibly further cuts by the Reserve Bank between now and the end of the year.

The Affordability Index factors in the median first home price, interest rates, average household income and the amount of income buyers need to qualify for the typical loan, to arrive at an index. The index dropped to a low of 104.9 in the March Quarter, but improved to 105.3 in June and 109.1 in September.

The HIA - the Housing Industry Association, the most pessimistic bunch of people I've ever come across in 26 years of researching real estate - managed to put a largely negative spin on the result.

"First home buyer affordability has been languishing at or near record lows for a long time now," it whined. "The HIA is calling for local and state governments to ensure that administrative bottlenecks in processing applications are avoided ..."

It grudgingly conceded that the downward trend in interest rates provided "some reasons to be cautiously optimistic about an improvement in housing affordability". I'm surprised the people at the HIA even know how to spell "optimistic".

These poor sods just can't seem to shake off their collective depression. For the rest of us, this is good news with more to come. The Federal Government's stimulus package, including a trebling of the First Home Owners Grant for newly-built homes, will create activity, in conjunction with the decline in interest rates and the fall in house prices in some areas.

ENDS

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