buying property

What’s normal in buying property

How affordable is the Australian property market and how much of your wage should you sacrifice?

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There’s a new normal surfacing when it comes to buying property and it’s potentially causing dramas on the subject of affordability.

Two industry reports spring to mind, and forgive us for any confusion. The latest Adelaide Bank/Real Estate Institute of Australia Housing Affordability report for the June 2016 quarter found the proportion of median family income required to meet average home loan repayments improved, meaning that owning property became more affordable.

“Over the September quarter, affordability improved in Victoria, South Australia, the Northern Territory and the Australian Capital Territory,” says Real Estate Institute president Neville Sanders.

“New South Wales remained the least affordable state or territory for home buyers. Tasmania had the smallest average loan size while the proportion of first home buyers on the owner-occupier market was the largest in Western Australia.”

The same report also found that renting became more attractive with less income required to meet median rents during the quarter. South Australia was the only jurisdiction where rental affordability worsened.

But in contrast to this the most recent Housing Industry of Australia’s (HIA) Affordability report found affordability declined in the June quarter – which means things became more expensive.

The report said that affordability fell by 3.7 per cent during the fourth quarter of 2016, representing a 2.1 per cent drop for the year, as cited by financial product comparison website finder.com.au.

So where does that leave us on affordability?

Well according to Nicki Hutley, chief economists at property consultancy Urbis, what’s happening is people are becoming more comfortable with spending more money on buying property.

“We are redefining what we spend our money on.

“The traditional measure of being in mortgage stress is if you had a to pay 30 per cent or more of your weekly income on housing. But nowadays most people accept that as being normal,” says Hutley.

“I seriously don’t think at this stage that the growth story is as strong as we thought six months ago, the outlook for interest rates is flat, and I don’t think rates will go down but some people do.

“The reason that the RBA hasn’t cut rates again is because of the housing market and they don’t want to stoke house price growth further.”

Hutley’s tips are that whenever you invest in any financial asset, including residential property, that you should never expect that prices will always go up.

“You need to invest for the long term, and if you don’t have a long-term investment horizon then you need to invest conservatively,” she said.

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