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Housing Affordability Update

The affordability of housing is often a pretty good indicator of economic performance overall, particularly as it involves income, expenditure, employment and government initiatives/funding.

Reports from the March quarter this year have shown an improvement in housing affordability nationally over the previous quarter, particularly with the proportion of household income required to meet loan repayments decreasing to 31.3% (decrease of 0.3%). While that is a positive result, this percentage is still 0.9 points greater than in the corresponding quarter of 2017.

Over the quarter, housing affordability improved in all states and territories, except Victoria, South Australia and the Australian Capital Territory. Compared to the March quarter 2017, housing affordability declined in all states but improved in the Northern Territory and the Australian Capital Territory.

Cash rate

During the March quarter, the Reserve Bank of Australia (RBA) maintained the official cash rate at 1.5%., while the quarterly average variable standard interest rate remained at 5.2%. The quarterly average three-year fixed rate increased by 0.1 percentage point to 4.2%, 0.1 percentage point higher than for the same time last year.

First home buyers

Another useful indicator of housing performance is the number of first home buyers. In the March 2018 quarter, this number decreased to 26,458, a decrease of 14.5% during the quarter but an increase of 28.0% compared to the March quarter 2017. First home buyers now make up 17.8% of the owner-occupier market and, if refinancing is excluded, the figure currently sits at 26.3%.

It would appear that this reduction in first home buyers wasn’t particularly localised, as every state and territory saw a decrease over the March quarter 2018, with the largest being in the Northern Territory (21.0%). Compared to the corresponding quarter 2017, the number of first home buyers increased in all state and territories, ranging from 0.5% in Western Australia to 80.8% in New South Wales.

The average loan size to first home buyers increased to $330,167, an increase of 0.5% over the March quarter and an increase of 5.3% over the past twelve months. Over the quarter, the average loan size to first home buyers increased in all states and territories except Western Australia, Tasmania and the Northern Territory.

Compared to twelve months ago, the average loan size to first home buyers increased in all states and territories except for the Northern Territory, where it decreased by 10.5%.

Lending trends

The total number of loans (excluding refinancing) decreased to 100,748, a decrease of 16.0% over the March quarter and 2.7% over the same quarter last year. Over the quarter, the total number of loans (excluding refinancing) decreased in all states and territories with the largest decrease in New South Wales and Victoria (17.9%) and the smallest decrease in Tasmania (9.2%). Compared to the corresponding quarter 2017, the number of loans decreased in all states and territories except for Victoria and the Australian Capital Territory. Over the March quarter, the average loan size decreased to $396,910, a decrease of 0.5% over the quarter but an increase of 6.5% compared to a year ago.

During the quarter, the average loan size increased in Victoria, Queensland, South Australia and the Australian Capital Territory, but decreased in New South Wales, Western Australia, Tasmania and the Northern Territory. Compared to the March quarter 2017, the average loan size increased all states and territories, except the Northern Territory where it decreased by 3.6%.

All things considered, it was a fairly topsy-turvy quarter for housing affordability. Whilst there was some short-term decreases in thing like loan amounts and first home buyers, the larger picture (particularly over the 12 months to the end of March) look fairly promising, and long may that continue.

If you have any questions or would like to know more about property investment or home finance, contact McKinley Plowman today on 9301 2200 or visit www.mckinleyplowman.com.au and make an enquiry for a free 30-minute consultation.

REFERENCES
REIA Housing Affordability Report March Quarter 2018

written by:

Paul Moran

Paul has over 35 years of experience in finding financial solutions for homebuyers, investors and business owners.
A licensed broker and member of the Mortgage & Finance Association of Australia (MFAA), Paul’s extensive experience includes 20 years with a major bank, seven of which were as commercial banking manager.
Paul delivers a holistic financial solutions to achieve the best possible outcome for a client’s personal or commercial lending needs. Paul also provides a comprehensive financial consultancy to business owners on commercial, equipment and invoice finance.