Property affordability expected to get worse in OZ as interest rates and prices rise, it is claimed.

Affordability for first time buyers highest in Australia

Property affordability for first time buyers in Australia worsened at the fastest rate on record during the last three months of last year, new research shows. Economists also expect those trying to get their first foot on the property ladder will face further challenges this year.

The sharp decline in affordability has been blamed on a 4.8% rise in average property prices for the quarter to December, the Reserve Bank raising the official cash rate by 0.75 basis points in three installments before Christmas, and the scaling back of the government’s first home buyer boost.

Housing Industry Association chief economist Ben Phillips said property prices are expected to keep rising over the next 12 months as Australia’s population grows towards a predicted 35 million by the middle of this century.

Mortgages will also become more of a stretch, as economists believe the official cash rate will rise by a further 0.75 to one percentage point by the end of this year. ‘Put all these factors together and I can’t see it being anything but a tough year for the first home buyers,’ said Phillips.

According to the HIA-CBA First Home Buyer Affordability Report, housing affordability worsened by 18.4% in the December quarter, compared with the previous quarter. The record fall tops steep declines in 2002, when the ability to own a first home dropped sharply because of an upswing in house prices.

Sydney remains the most unaffordable city in Australia, with affordability diving 22.3% in the December quarter. The cost of owning a home also worsened sharply in Brisbane, Hobart and Canberra.

The HIA is forecasting a moderate housing recovery this year, with about 152,000 dwelling starts, but that is well down on the 190,000 required by population increases.

Stephen Walters, of JPMorgan said the proportion of first home buyers in the market had already shrunk to 20% from 30 % last year. ‘Parents can help with deposits and provide finance, but that is not typical,’ he said.

People had borrowed a lot of money when interest rates were at 3% and many would cut back sharply this year on discretionary spending. ‘A lot of people out there borrowing haven’t thought about how much banks will raise rates over and above the RBA but they should,’ Walters added.

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