Housing affordability improving in Australia
June 3, 2014 / Written by Rich Harvey
They say when it rains, it pours, and that certainly seems to be the case when it comes to information coming out of the Australian housing market.
A barrage of reports has highlighted the health of the sector, and more importantly for people looking to buy property in Australia, the current levels of affordability.
As investors and home buyers alike have flooded the market, some have been worried this activity would lead to a surge in home prices that would make it next to impossible to find a good deal.
And while home prices have certainly risen, the current interest rate environment is doing much to offset the cost.
Low rates boosting affordability
"The continuation of record low interest rates, combined with decelerating home price increases and growth in earnings over the quarter, saw the HIA-CBA Housing Affordability Index improve to its most favourable level since March 2002," said Housing Industry Association (HIA) Senior Economist Shane Garrett.
"The HIA-Commonwealth Bank Housing Affordability Index improved by 2.1 per cent during the first quarter of 2014 and affordability is now 10.8 per cent more favourable than a year ago."
Those seeking a buyers agent in Sydney should be particularly pleased, as the New South Wales capital city was one of only two that experienced affordability improvement over the March 2014 quarter.
Sydney saw a boost of 2.2 per cent on the HIA-CBA Housing Affordability Index, while Perth saw a more subdued increase of 0.1 per cent. Meanwhile, affordability remained unchanged in Melbourne and declined in Adelaide, Hobart and Brisbane.
"The [Reserve Bank of Australia] has signalled that interest rates are set to remain low for some time," Mr Garrett continued.
"As home price pressures ease off, we expect home owner affordability to remain reasonably favourable for the foreseeable future."
Of course, interest rates aren't the only thing helping affordability for home buyers in Australia. Inventory can play a major role in affordability, not to mention competition.
Residential construction on the rise
Fortunately for buyers, residential building activity experienced strong growth during the first quarter of 2014.
Citing data from the Australian Bureau of Statistics, the HIA reported there was more than $13 billion of residential building work during the March quarter - a 6.8 per cent rise from the previous quarter, as well as an 8.4 per cent increased from the same quarter in 2013.
"Dwelling approvals activity was particularly strong in the final quarter of 2013, so it is natural that we now see an improvement in the level of building work being done," said HIA Economist Geordan Murray.
"Aside from a single quarter in 2010 when activity surged in response to fiscal stimulus during the financial crisis, the March 2014 quarter was the highest level of residential building work done in any other quarter on record."
While the majority of work done was on multi-unit housing, figures show the value of work done on new detached homes rose 4.7 per cent during the March quarter, reaching a level 2.4 per cent higher than the same time last year.
More new homes are likely to help ease fierce competition for existing stock and likewise cool price pressures, making the purchase of property more affordable.
However, buyers should keep in mind that favourable conditions don't necessarily guarantee a low home price, especially in hotspots like Sydney. Property negotiation tactics are more vital than ever in today's market, and having a qualified professional in your corner can mean the difference between paying more or saving tens of thousands of dollars.
Home buyers looking to take advantage of the current market and save would be wise to invest in the services of an experienced buyers agent.