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Affordability swings in buyers’ favour

After an extended run of rising property values, home buyers are enjoying an uptick in affordability according to the HIA Affordability Index.


After an extended run of rising property values, home buyers are enjoying an uptick in affordability.

We live in a world where big numbers attract attention. So it’s not surprising that the latest Affordability Index from the Housing Industry Association (HIA), which shows housing affordability rose 2.2% in the last year, hasn’t hit media headlines.

But improving affordability is a game changer for first home buyers, investors and upgraders.
Let’s break it down to see what it means for you.

How is “affordability” measured?

The HIA Affordability Index is based on the idea that home loan repayments are manageable when they take up 30% of gross (before tax) earnings.

If the Index rises above 100 it means loan repayments require less than 30% of earnings. Conversely, if the Index falls below 100, it takes more than 30% of income to cover home loan repayments.

Okay, that’s the Housing Affordability Index in a nutshell.

Exciting news! Affordability is on the rise

According to the HIA, the Affordability Index has risen nationally by 2.2% over the last year. Put simply, it means housing is now more affordable than it was a year ago. However, the Index alone doesn’t show just how much more value today’s home buyers are enjoying.

To get the full picture, it’s worth looking at how home values have moved using data from research group CoreLogic.

According to CoreLogic, Sydney’s median home price is currently $ 833,876. This time last year it was $ 905,917. That’s a reduction of $72,041 – more than a year’s income for some home buyers!

Not surprisingly, HIA acting principal economist Geordan Murray, says, “A trend of improving affordability is taking root in the major capital cities, due largely to falling housing prices.”

While Murray notes that Sydney has posted the biggest gains in affordability, buyers are also enjoying more bang for their buck across a number of state capitals including Melbourne, Perth and Darwin.

Brisbane and Adelaide's home values have remained relatively stable over the last 12 months, meaning home buyers still enjoy plenty of purchasing power in these cities.

What’s in it for you?

It’s no secret that that property prices in Australia’s two biggest cities – Sydney and Melbourne, have dropped back substantially.

That’s exciting news for first home buyers, investors and also upgraders, who can often enjoy big savings on their next home even in cooler market conditions.

Even better, we are still in a period of record low-interest rates, and there are some exceptional home loan deals up for grabs.

But that won’t last indefinitely. The Reserve Bank has flagged that the next interest rate move is likely to be up.

Long story short, the time to take advantage of wafer-thin rates plus lower property prices is now.

Talk to your local Mortgage Choice broker today to understand how you can benefit from improved affordability while interest rates remain near historic lows.

Posted in: Home loans

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