Perth’s reign as most affordable capital city continues

Stock image.
Stock image.

FALLING prices and a raft of other factors have combined to help Perth maintain its title as Australia’s most affordable capital city.

According to the June quarter 2019 HIA Affordability Index, affordability improved 2.6 per cent during the reporting period.

Perth was given a rating of 115.9, up from 112.9 in the March quarter.

Darwin was a close second with a rating of 115.4.

Over the quarter Perth prices fell 1.9 per cent and are 8.8 per cent lower than the same time last year according to CoreLogic data.

As a result, a typical mortgage payment fell from $2138 per month to $2082, representing 25.6 per cent of earnings, down from 26.6 per cent in the previous quarter.

Year-on-year, monthly mortgage repayment are down $181 from $2263 when they were 28.4 per cent of earnings.

Affordability improved nationally and across all capital cities with the HIA saying it was the best it had been since 1999.

“For a home buyer with an average income purchasing a median priced dwelling (assuming a 10 per cent deposit), mortgage repayments will consume the smallest proportion of their earnings since 1999,” senior economist Geordan Murray said.

“The main reason the HIA Affordability Index today is comparable with the level in 1999, despite house prices rising significantly faster than incomes, is that interest rates are 4.6 per cent today compared with 6.7 per cent in 1999.

“Average earnings have increased by 113 per cent over the 20 years to 2019, while the median home price has increased by 228 per cent but the lower interest rates have kept the cost of servicing a loan the same.”

In Perth declining prices have played a major role in affordability over the past five years.

Since the peak in the June quarter 2014, the median price has fallen from $532,135 to $415,789, representing a $7221 annual reduction in mortgage repayments if a lower priced home was purchased.

Lower interest rates have also improved affordability.

“The Reserve Bank has now cut official interest rates by 50 basis points,” Mr Murray said.

“For new borrowers or those that refinance, lower rates mean lower minimum mortgages repayments.”

If banks pass on 80 per cent of the RBA’s cuts this represents a $1066 annual saving on a typical loan for Perth home owners.

Another factor set to improve affordability is the increase in disposable income from the income tax cuts recently passed by Parliament.

“For a couple looking to purchase their first home with incomes of $80,000 and $60,000 this would have a cumulative financial gain of $2,160 per year,” Mr Murray said.

Buyers will also benefit from the Federal Government’s First Home Loan Deposit Scheme, which aims to assist up to 10,000 first-home buyers enter the market and the recent changes to APRA’s mortgage serviceability guidelines which should make it easier for buyers to find finance.

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