Housing affordability improved in the December quarter, according to the latest Real Estate Institute of Australia (REIA) Deposit Power Housing Affordability Report.
The report revealed the proportion of income required to meet loan repayments fell by 0.7 per cent to 32.9 per cent. By state, the most significant fall in the proportion of income needed to meet loan repayments was in Victoria, down 2.5 percentage points, while New South Wales and the Northern Territory recorded the biggest increases, up 0.8 percentage points.
The most affordable state or territory to buy a home was Canberra, despite a fall in housing affordability over the December quarter. The proportion of income to meet loan repayments rose 0.7 percentage points over the year to 18.6 per cent and is 14.3 per cent below the national average.
The least affordable state or territory is New South Wales. Over the quarter, the proportion of income required to meet loan repayments rose 0.8 percentage points to 37.9 per cent, and is five percentage points above the national average. The fall in housing affordability was due to decreasing income and increasing loan repayments, REIA says.
With the Reserve Bank lowering the official cash rate by 0.5 per cent to 4.25 per cent over the quarter, the quarterly average variable rate fell 0.5 percentage points to 6.8 per cent.
"Interest rates have a big impact on affordability for existing homeowners and can also be a major deterrent for those looking to enter the market for the first time," says Keith Levy, Manager at Deposit Power.
"The news isn't all bad for mortgage holders, as the rises could lead to the re-emergence of non-bank and other securitised lenders into the market, looking to compete with the major banks. The higher rates also mean an advantage of deposit holders."
The number of loans to first homebuyers rose by 25.6 per cent over the quarter and 23.8 per cent over the year. First homebuyers accounted for 20 per cent of the market, up from 16.8 per cent in the September quarter.
All states and territories experienced a rise in first homebuyers, with the largest increase in New South Wales, up 61.9 per cent.
The average loan to first homebuyers fell 1.2 per cent of the quarter, and by 1.1 per cent over the year to $282,967. Tasmania saw an increase in the average loan to first homebuyers, up one per cent.
The total number of loans (excluding refinancing) fell by 4.8 per cent over the quarter, and by 10.9 per cent over the year to 96,213 and the average loan rose by 3.6 per cent over the quarter and by 2.9 per cent over the year to $314,066.
New South Wales saw the highest average loan size at $344,012, while the lowest loan size was in Tasmania at $212,584.
"For the majority of 2011 house prices throughout Australia decreased and with all the current global uncertainty, people will be wary of making new purchases and investments," says Levy. "If the economy remains strong and unemployment remains lower, we are likely to see activity in to upgrader or downgrader segment of the market, as buyers look to take advantage of the softer prices."