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Recent interest rate reductions have not been drastic enough to allow significant house price growth – or worse, inflate a housing market bubble – says Residex founder, John Edwards, because affordability is keeping the industry in check.
Residex figures show ‘spending power’ after payment of loan or rent ranges between $880 (Sydney) and $1,457 (ACT) for the former and $1,057 (Hobart) and $1,537 (ACT) for the latter.
“I am sure that most of us with a small family would consider living on $1,000 per month somewhat difficult, having to use this to make car repayments, pay energy bills, telephone costs and at the same time buy food and clothing. When looking at the table in this light, the median family buying the median home is very constrained by affordability. In fact, they are better off renting,” argues Edwards.
“The realisation that renting is a better option will be taking hold, but the lack of security of tenure will be influencing many people and causing them to accept the more difficult option. Ownership of house and land assets is going to become less prevalent and ownership of units will become more of the norm in time. Additionally, renting will become more prevalent in city areas.”
If demand is limited due to affordability, there will also be a limit on the rate of capital growth, he says.
“Given the view that interest rates are unlikely to fall much further and house prices probably won’t fall in value by any significant amount, properties that are most likely to see growth are those located in areas with better affordability.”
But, overall, Edwards believes the Australian housing market is improving.
“The median value of all dwellings in Australia is approximately $425,000, which is around its peak value achieved in January, 2011. In the last three months, dwelling prices increased by about 1% while they increased by approximately 1.7% in the last 12 months. Clearly, the majority of advances in the market have taken place in the last three months. Sales activity remains low but it is improving. It is now close to the level achieved in December 1999.”
“Overall, the recent interest rate reduction will help ensure the advance in housing values that are currently being seen continues, albeit at a moderate level.”
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