The Housing Industry Association (HIA) today released its quarterly housing affordability index for the March quarter of 2013, which registered another improvement. From the Media Release:
The trend of improving housing affordability has continued into 2013 with affordability rising by 1.2 per cent in the first three months of the year. An easing of mortgage lending rates alongside subdued house price developments were the main divers of this improved affordability, said the Housing Industry Association, the voice of Australia’s residential building industry.
The HIA-CBA Housing Affordability Index inched up by 1.2 per cent in the March 2013 quarter to a level of 69.7. The index is now 12.8 per cent higher than twelve months earlier…
“Overall, the trend across the capital cities is one of continued improvement in affordability, with the capital city index increasing by 2.0 per cent in the March 2013 quarter. However the cities of Adelaide, Perth and Hobart each saw declines in affordability,” added HIA Senior Economist Shane Garrett.
“Some of these developments notwithstanding, the overall trend of improvement continued into 2013, and we can expect further improvements over coming quarters as the latest RBA rate cut flows through to households,” noted Shane Garrett…
Reductions in affordability occurred in Adelaide (-4.1 per cent), Hobart (-3.8 per cent) and Perth (-2.6 per cent) during the March quarter of 2013. Affordability improved in Brisbane (up by 6.2 per cent), Melbourne (up by 4.7 per cent), Canberra (up by 2.6 per cent), and Sydney (up by 1.2 per cent).
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 have always had concerns about this index. How it can claim that housing affordability is currently well above mid-1990 levels is beyond me, given that the median capital city house price in 1994 was only around $150,000 (compared with around $550,000 currently) and variable mortgage rates were just under 9.5% (versus 5.4% currently).
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.
