Housing Affordability Surges
Housing affordability surged in December 2012 quarter. According to the HIA-CBA Housing Affordability Index this has been driven by earnings growth, interest rate cuts and weak price increases. The Index increased by 5.5 % in the December 2012 quarter, representing an 18.4% advance on the same period of 2011. This is the 8th consecutive quarter of increases.
HIA senior economist, Shane Garrett commented that “For regional areas, affordability is at levels last seen during the early 2000s. Affordability is on the increase in every part of the country”. “It is worth noting that affordability would be even more favourable to householders had recent RBA rate cuts been passed on fully by lenders,” says Garrett. “Despite the relative attractiveness of house purchase implied by these figures, transactions activity on the ground is very sluggish. This underlines the need for stronger interventions from the RBA in terms of interest rates and from the government with regard to the heavy taxation of home purchase.”
What does this mean for investors? Housing affordability can be a strong signal of impending price rises. When houses are perceived as more affordable more first home buyers are tempted into the market, more home owners consider selling and upgrading and more investors can afford to buy another property. As more buyers enter the market, upward pressure is placed on prices, and this eventually results in price rises.