Rates start biting into housing values after three years of price rises

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The latest rise in interest rates started biting into the upward climb of housing values in March which, after three years of soaring prices, dropped by 2.4%, back to $425,600, the latest Housing Industry Association (HIA)-CBA First Home Buyer Affordability Index shows.

The index revealed the average interest rate was now at 8.75%, while the average house value had dropped from $436,000 in the December quarter.

Phil Naylor, MFAA chief executive officer, said the interest rate rises “were doing their job” by dampening demand.

“Overall, (the HIA) figures show the housing market is slowing down,” he said. “The demand, which is what essentially is pushing the values up, is no longer there.”

Since the latest interest rate rises, the HIA affordability index fell by 3.5% during the quarter, to 103.1 – down more than 10% from a year ago when it was at 114.1.

HIA blamed the surge in interest rates in the first quarter as well as “the complex planning laws and exorbitant property charges and taxes”, saying that, as a result of the Reserve Bank of Australia (RBA)’s two official 0.25% rises and several retail rate increases, the overall rate rise was 0.8 of a percentage point in the March quarter, which had led the average home loan payment to increase by 4.4% to $2799 per month.

Mortgage repayments now account for 29.1% of total first home buyer income, up one percentage point on the December quarter. The ratio also increased as a proportion of household disposable income – which in itself has come down from $84,000 to $83,600 – from 38.3% to 40.2%.

Chris Lamont, HIA chief executive – policy, said the latest inflation figures confirmed it was now becoming increasingly difficult to save for a deposit for a family home while renting because rents had started to eat into the family budget and making it impossible to save.

He said the report highlighted the importance of the Federal Government’s housing programs and the need for urgent planning and taxation reform across all levels of government.

The report showed affordability worsened in all capital cities, with the exception of Sydney, as a result of a lack of new home sales, and a levelling-out in Hobart. The greatest falls in affordability for the quarter, were in Brisbane and Canberra.

Mr Lamont said the cost of planning and development charges needed urgent attention.

Lending Central

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