First-home buyer hopes fade

Hope is fading for first-home buyers battling to enter the housing market, with a report out today showing housing affordability at an all-time low.

The Housing Industry Industry Association-Commonwealth Bank first-home buyer affordability index fell by 3.5% for the March quarter as a surge in interest rates raised the barrier to home ownership for thousands of Australians.

The affordability index, which measures the costs of first-home financings over the average wage, fell from 106.9 in the December quarter to a low of 103.1 in March, 11% lower than a year ago and the worst since the index began in 1984.

The results are "terrible," said HIA Chief Executive for policy, Chris Lamont. "The index has been setting the wrong record for last 18 months."

"Despite some modest stabilisation, the fact is that there is a deficit in supply," Mr Lamont said. "The old adage of supply and demand isn't occurring because supply isn't keeping up."

He warned of a growing divide between the housing-haves and the housing may-never-haves.

Neil Laws, president of the Real Estate Institute of Victoria, agreed with the grim assessment.
"I can't find an upside to the fact first-time home buyers are struggling and will continue to struggle," said Mr Laws.

In 1970, the typical home price was 4.1 times an average salary, according to the HIA, a ratio that has now blown out to almost nine times.

Affordability deteriorated in all capital cities except Sydney and Hobart, which were stable, the report stated.

Residents of Brisbane and Canberra suffered the largest price increases.

Monthly loan repayment on a typical first-home mortgage in Australia jumped 4.4% to $2,799 from $2,681, according to HIA.

Mortgage repayments account for 29.1% of total first home-buyer income, a one percentage point increase over the December quarter.

The report comes after a 1.7% fall in the December quarter for the index, driven lower by an interest rate rise by the Reserve Bank in November.

Adding to the cost of housing are taxes and charges, which added $110,000-$115,000 to the typical house and land package in Sydney, Mr Lamont said.In Victoria, that figure is about $57,000.

czappone@fairfax.com.au

The Age | Chris Zappone | May 21, 2008