Housing affordability on the rise

Housing affordability on the riseAustralian housing affordability has reached its highest point in a decade because of record low interest rates, with the HIA-CBA Housing Affordability Index improving 2.1 per cent during the March quarter.According to HIA, housing affordability has increased dramatically during the past year, despite rising home prices. The HIA-CBA Housing Affordability Index reported an improvement of 2.1 per cent in the March 2014 quarter, while an increase of 10.8 per cent was reported during the 12-month period.The index is calculated on the premise that buyers contribute a 10 per cent deposit and finance the remaining 90 per cent of the purchase price with a 25-year variable rate mortgage. The index also takes additional figures into consideration, such as weekly household income and the cost of home ownership (for example, house price and monthly mortgage repayments).The impacts of declining interest rates and ongoing earnings growth have contributed significantly towards the improvement in home purchase affordability. However, HIA was careful to state that these improvements are limited to existing home owners and those about to enter the market in the short term.The Reserve Bank of Australia (RBA) expects interest rates to remain low as the pressures on home prices continue to diminish.The HIA-CBA Housing Affordability Index witnessed improvements in two of the six surveyed capital cities during the March 2014 quarter. Canberra saw the biggest improvement in affordability, recording an increase of 7.7 per cent, followed by Sydney with 2.2 per cent. Melbourne, Brisbane and Perth were all largely unchanged compared with the previous quarter.In terms of regional areas, affordability improved in regional WA by 2.8 per cent and in regional NSW by 1.3 per cent compared with the previous quarter. Regional SA recorded a negligible 0.3 per cent increase in affordability.You can find the HIA-CBA Housing Affordability Index here