The Housing Industry Association (HIA) today released its quarterly housing affordability index for the December quarter of 2012, which registered another solid improvement. From the Media Release:
Housing affordability surged again in the December 2012 quarter, driven by earnings growth, interest rate cuts and weak price developments, said the Housing Industry Association, the voice of Australia’s residential building industry.
The HIA-CBA Housing Affordability Index increased by 5.5 per cent in the December 2012 quarter, representing an 18.4 per cent advance on the same period of 2011.
“This is the eighth consecutive quarter of increase in the index, bringing it close to levels not seen since the depths of the GFC during 2009,” said HIA Senior Economist, Shane Garrett…
“Despite the relative attractiveness of house purchase implied by these figures, transactions activity on the ground is very sluggish. This underlines the need for stronger interventions from the RBA in terms of interest rates and from the government with regard to the heavy taxation of home purchase”.
The HIA-CBA Housing Affordability Report recorded improved affordability in all seven capital city indices as well as improvements in the six indices tracking the non-metro regions of each state…
The below chart plots the time series since 1994. As you can see, housing affordability is at decade highs, excluding the brief bounce in the wake of the GFC:
I’ll admit that I have always had concerns about this index. How it can claim that housing affordability is currently above mid-1990 levels is beyond be, given that the median capital city house price in 1994 was only around $150,000 (compared with around $540,000 currently) and variable mortgage rates were just under 9.5% (versus 5.7% as at December 2012).
For what it’s worth, below is my own affordability index, with median house prices derived from Abelson & Chung (2004) and APM, variable mortgage rates from the RBA, and household income measured as 1.5 times average pre-tax weekly earnings. As you can see, affordability has certainly improved, although it remains below the long-term average (see next chart).
Full Media Release below.
