Housing Affordability – State by State

We’re told housing is unaffordable, aren’t we?

BIS Shrapnel recently prepared a report Australian Housing Outlook – 2015-8 for QBE Insurance and looked at this issue.

So what’s going on?

Here’s what the report had to say:

Housing affordability is defined by the mortgage repayments on a 25 year loan of 75% of the median house price at June 30 each year, at the prevailing June 30 standard variable rate, as a percentage of average household disposable income.

The following chart shows that in the Sydney and Melbourne property markets, following strong house price growth of 44% and 28% in the respective capitals during the two years to 2014/15, affordability deteriorated markedly.

Housing Affordability 1

The ratio of mortgage repayments to household income of 40.6% in Sydney and 34.9% in Melbourne at June 2015 reflects previously challenging levels, indicating limited scope for continuing solid price growth.

In all other capital cities affordability ratios at June 2015 are consistent with previous levels.

More moderate house price growth and the 50 basis point cut to the standard variable interest rate during the first half of 2015 have combined to maintain affordability in these cities.

Interest rates are still low and in a tight market low interest rates should stimulate house price growth.

This is evident in the capital cities where there is a housing stock deficiency.

An improvement in the economy during 2016/17 is expected to result in the RBA becoming more concerned about wage cost inflationary pressures in the medium term.

Interest rates are forecast to enter a mild tightening phase in late 2016 or early 2017.

In Sydney and Melbourne, with projected price growth in 2015/16 and the cash rate being forecast to rise by only 25 basis points in 2016/17, affordability is expected to deteriorate sufficiently to initiate a mild price correction in 2017-2018.

In the other capital cities, less challenging affordability should mitigate some of the downward pressure on prices in oversupplied markets and in resource-sector exposed markets such as Perth and Darwin.

SourceQBE  Australian Housing Outlook – 2015-8

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

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