Affordability index sees fall in June quarter

Affordability index sees fall in June quarter

Posted on Friday, July 31 2015 at 12:03 PM

The Housing Industry Association (HIA) Affordability Index fell in the June 2015 quarter, signalling a deterioration in affordability conditions.

“The
positive impact of a second interest rate cut for the year in May was
overwhelmed by an increase in the CoreLogic RP Data median dwelling price and
the persistence of sluggish earnings growth,” HIA chief economist Dr Harley Dale says. “The net negative impact of these
factors saw the national HIA Affordability Index fall by 2.9 per cent to 79.7
in the June 2015 quarter.

“The
national affordability result masks wide variations around the country, an
unsurprising finding given the lack of geographical consistency to the current
residential cycle,” he adds.

During
the June 2015 quarter, affordability deteriorated by 3.6 per cent in capital
city markets, driven by Sydney and Melbourne. This was in stark contrast to a 2.7
per cent improvement for regional Australia. Compared with the June quarter
last year, capital city affordability worsened by 0.6 per cent, while in
regional Australia affordability saw a 5.2 per cent improvement.

“The
large differences in the results for the capital city Affordability Index and
its regional counterpart, together with the variation in outcomes between
capital cities, exposes the folly of sweeping generalisations that refer to an
Australian housing boom,” Dale says. “That is simply not what is occurring – in
many parts of Australia the extremely low interest rate environment is
delivering historically favourable affordability conditions.

“It’s
against this backdrop that authorities have escalated their requirements for
the rationing of credit to residential investors. The risk is that this will
obstruct new housing supply, aggravating affordability conditions in markets
around Australia,” he concludes.

ABS figures
released earlier this week show that total new home building approvals fell in June 2015, due to a
sharp decline in approvals for non-detached housing. Approvals for detached
housing continued an 18-month trend of relatively strong and steady levels.

In June
2015, the number of new home building approvals declined by 8.2 per cent to
17,868 in seasonally-adjusted terms. During the June 2015 quarter, approvals
totalled 56,351, 4.8 per cent lower than in the previous quarter.

“Both the
monthly and quarterly declines in new home building approvals were driven by
falls in non-detached housing approvals,” HIA economist Diwa Hopkins says.

“It
certainly looks like this segment of approvals has peaked, with each of the
last three months of activity falling well short of the record-high level
reached in March this year.

“In
contrast, detached house approvals have been tracking fairly steadily at
relatively strong levels for the past 18 months. Approvals in this segment of
the market have maintained an average of 9,650 per month since January 2014.
The last time such levels were similarly maintained was over a decade ago.” 

 

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