Housing affordability in Australia is now at the best level since 1999 following a series of interest rate cuts, a report says.
The Housing Industry Association acknowledged median property prices had surged by 228 per cent during the past two decades, a level that is more than double the 113 per cent increase in average earnings.
Despite that, the group’s senior economist Geordan Murray said Reserve Bank of Australia interest rate cuts in June and July had made servicing a home loan easier in 2019 than it was 20 years ago, with the cash rate now at a record low of one per cent.
‘For a home buyer with an average-income purchasing a median priced dwelling, mortgage repayments will consume the smallest proportion of their earnings since 1999,’ he said
His call may seem controversial, with many young people struggling to save up for a mortgage deposit.
Sydney’s median house price of $866,524 is more than 10 times an average Australian full-time salary of $83,500.
A borrower or a couple need to earn $150,000 a year, or 1.8 times an average wage, to afford a typical suburban house in Australia’s biggest city without being in mortgage stress, the HIA acknowledged.
Across Australia’s capital cities, median house and unit prices stand at $590,431, CoreLogic data shows, which is more than 10 times the national median income of $55,400.
Despite that, the HIA argued housing affordability across Australia’s eight capital cities and key regional areas was the best in 20 years based on lower rates.
With the official cash rate now at one per cent, borrowers are paying average standard variable rates of 4.6 per cent.
In 1999, borrowers were paying 6.7 per cent mortgage rates when the cash rate was five per cent.
The gap between the RBA cash rate and typical standard variable mortgage rates, however, has significantly widened from 1.7 percentage points to 3.6 percentage points.
Still, the HIA was optimistic of market conditions improving for first-home buyers.
Last week, the Australian Prudential Regulation Authority dropped a requirement for lenders to model a borrower’s ability to pay off a 7.25 per cent mortgage rate.
During the election campaign, Prime Minister Scott Morrison promised the government would establish a $500million First Home Deposit Scheme whereby taxpayers would fund a 20 per cent deposit if borrowers stumped up five per cent.
Median house prices also fell in Sydney, Melbourne, Brisbane, Adelaide, Perth and Darwin during the June quarter, CoreLogic data showed.
The HIA’s affordability measure showed homes were more accessible in every capital city during that time.
Darwin had the greatest affordability improvement of 4.8 per cent, followed by Melbourne (three per cent), Perth and Brisbane (2.6 per cent), Sydney and Canberra (2.4 per cent), Hobart (2.2 per cent) and Adelaide (one per cent).
Source: Daily Mail