Canberra houses less affordable

Despite the lowest interest rates on record, housing affordability in Canberra is now clearly in decline with levels falling over the December quarter and also down over the past year.

An index of housing affordability that measures average home loan repayments as a percentage of average local household income has reported a rise for Canberra of 6.3 per cent over the December quarter. A rise in the index reflects a fall in affordability as it represents an increase in the proportion of average home loan repayments from the average wage.

Housing affordability also declined over 2015, with the loan repayments index increasing by 3.5 per cent. 

Although housing affordability has fallen over the past year in Canberra, the December quarter index result at 87.8 remains well below the long-term average of 100 indicating the local housing market is still technically affordable.

All other capital city housing markets also remain affordable with local index levels below the 100 average with Darwin the most affordable with an index measure of 78. Sydney is the clear exception with its local index now above 100 at 102.7 and clearly now unaffordable as confirmed by the recent sharp fall in house prices.

Changes in the affordability index match corresponding movements in house prices reflecting the impact of variations in the level of mortgage repayments from household incomes. Despite the recent increase in the Canberra index and affordability levels falling, the local market remains relatively affordable and still provides potential for prices growth although the rate of growth may flatten compared with recent results.

Much as usual will depend on the performance of the local economy, incomes growth, changes in mortgage interest rates and market confidence.

Dr Andrew Wilson is Domain Group chief economist. Twitter: @DocAndrewWilson – My Property, 2UE, Fridays 2-3pm, Saturdays 12.30-1pm