Low interest rates and slowing property prices have seen housing affordability rise to the highest that it’s been in a decade. The HIA-CBA Housing Affordability Index for the March quarter, which was recently published, showed that housing affordability nationwide is at its most favourable level since 2002.
Housing affordability rose during the March quarter in the Australian Capital Territory, Perth and even in Sydney. It also improved in regional areas of Western Australia, New South Wales and South Australia.
While the report stated that housing affordability dropped in Adelaide, Hobart and Brisbane, and in some regional areas of Tasmania, Queensland and Victoria, it should also be noted that in many of these areas property has been slower to appreciate in value. Therefore, it is suspected that these rates may be market adjustments where these areas are catching-up to those that have already boomed in terms of value.
Economists nationwide are still saying that it is highly unlikely that home loan interest rates will rise in 2014. Many are speculating that rate rises could possibly occur in early 2015.
In terms of the types of home loans being taken out, the majority of home loan holders have variable rate loans, even though the number of fixed rate loans has risen.
At present, most lenders are offering a variable rate that hovers around the 5 percent mark. This means for the owners of the average $300,000 home loan at 5.25 percent over 25-years that repayments are around $2,000 a month. However going back a year ago, when home loans hovered around 7 percent, the same home loan would have cost approximately $2,200 a month.
Thankfully economists say that rates of 17 percent that were witnessed in the late 80s and early 90s will not happen again, due to structural shifts in the movement of interest rates. This, they say, will prevent interest rates from reaching such unaffordable levels again.
Based on our previous home loan example, a home loan of $300,000 at 17.2 percent over 25-years, would cost around $4,300.00 a month to maintain. A rate that most home owners would find difficult to repay.
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