Home loan affordability worsened in every State and Territory in the June quarter 2006, with the exception of Tasmania where it was unchanged, according to the Deposit Power / Real Estate Institute of Australia Home Loan Affordability Report released today. Deposit Power has joined with REIA to co-publish the Home Loan Affordability Report, a comprehensive and accurate assessment of the ability of Australians to meet the cost of home purchase.

‘The May 2006 interest rate rise had an immediate impact on first home buyers with their share of all dwellings financed falling from a much improved figure of 19.1% in April 2006, down to 17.4% in May and 17.0% in June. The August 2006 interest rate rise is likely to have a further negative impact on first home buyer sentiment,’ says Tony Brasier, REIA President.

‘In the short term, the 4% annual increase in the CPI to the June quarter 2006 will also hurt homebuyers’ pockets, particularly highly geared borrowers.

‘Median family income has not kept pace with CPI over the year to June 2006, except in South Australia and Tasmania which saw 4.1% and 5.2% increases in median family income respectively. This, combined with increased average loan repayments, increases the likelihood of financial stress for homebuyers,’ says Tony Brasier.

‘A stable interest rate must be a priority. While Government is correct to point out that interest rates are well below the double digit rates of the period up to September 1991, Australia now has the fourth highest interest rates of all OECD countries, with only New Zealand, Iceland and Turkey having higher rates.

‘Australian homeowners have enjoyed 10 years of single digit interest rates, and six years of interest rates below the current level. Whilst today’s rates are historically low, Gen X and Y home buyers have only known single digit interest rates – this is their financial norm, not the interest rates of 30 years ago. Home buyers have quite rightly made financial and lifestyle choices based on expectations of stable, single digit interest rates, thus the level of pain experienced by many highly geared borrowers faced by interest rate rises.

‘To further improve housing affordability, REIA continues to call on governments to index the first home owners’ grant, reduce or abolish state property taxes and improve land release. In particular, REIA calls on State Governments to explain how they might use property taxation to improve affordability.

‘There would be potentially significant benefit in the Federal and State governments agreeing to a government / industry taskforce to review the report of the very good work undertaken by the Productivity Commission on first home affordability in 2004 to identify specific issues which governments might subsequently address,’ says Tony Brasier.

For further information or comment, call:

Tony Brasier REIA President 0412 570 222

Graham Joyce REIA Deputy President 0418 923 053

BACKGROUND INFORMATION

Australia

Borrowers now need 33.2% of family income to meet average loan repayments, the highest proportion required for more than ten years.

New South Wales

New South Wales remains Australia’s least affordable location, with 37.0% of family income required to meet average loan repayments. Affordability deteriorated 4.6% over the quarter and 0.7% over the year.

Victoria

Victorians required 31.3% of family income to meet average loan repayments in the June quarter. Home loan affordability deteriorated 1.8% over the quarter and 2.1% over the year, equalling the 26 year low point reached in September 2005.

Queensland

Queenslanders required 33.7% of family income to meet average loan repayments in the June quarter. The proportion of income required has remained above 30% every quarter since March 2004. Home loan affordability deteriorated 0.7% over the quarter and 2.0% over the year.

South Australia

Home loan affordability declined 4.9% over the quarter and 7.3% over the year in South Australia, second only behind Western Australia in the level of deterioration. 30.1% of family income is required to meet loan repayments. Home loan affordability is now at its lowest point since the June quarter 1995, and it is the first time in that period that more than 30% of family income has been required to meet average loan repayments.

Western Australia

The most significant decline in home loan affordability in the June quarter occurred in Western Australia, down 7.4% over the quarter and 15.5% over the year, reflecting the major increase in house prices in that state. This was the lowest level of affordability recorded for Western Australia since the September quarter 1990. 30.6% of family income is now required to meet average loan repayments.

Tasmania

Home loan affordability was unchanged in the June quarter, although it deteriorated over the year by 5.1%. It is now at its lowest point since March 1980, with 31.5% of family income required to meet average loan repayments.

Northern Territory

Home loan affordability deteriorated 1.1% over the quarter and 3.5% over the year, with 19.4% of family income required to meet average loan repayments.

Australian Capital Territory

Home loan affordability is best in the ACT, attributable primarily to median family income being between 17% and 45% greater than all other localities. Median house prices in the ACT are Australia’s third highest, behind Sydney and Perth. 19.2% of family income is required to meet average loan repayments, with affordability deteriorating 2.4% over the quarter.