Recently I was considering my current housing options and if I should move closer to the city since the interest rates are so great at the moment and to potentially reduce my travel time to the city. I started to ponder should I upsize or downsize and started to look at real estate. Then I thought can I afford to move?
Everywhere I turn I hear a common theme amongst friends “the cost of houses these days is ridiculous compared to our incomes!”. Housing affordability affects everyone and there are several factors that influence the perceived affordability. These factors are Interest rates, Wages/Income, Labour force, Unemployment rates, Median prices/values of property and Rental rates. But should these factors be the only thing that influences you?
For example, most home owners /property investors know that interest rates are a considerable factor to affordability, as when interest rates are lower, the interest repayments on home loans are lower and this result in the ability of “affording” the repayments on a mortgage being easier. So at the moment the standard variable rate is about 5.95% and has averaged 7.27% over the past 10 years. However, whilst that is true interest rates are great at the moment, if housing prices are rising and sales increase this may offset the lower mortgage rates benefit of being affordable.
It is interesting to note the 10th Annual International House Affordability survey 2014 data from Demographia which was released earlier this year also shows that Australia continues to be one of the least affordable housing markets. Demographia rates housing affordability within housing markets by comparing the median household income to the median house price.
This survey assessed 360 urban housing markets in 9 countries including Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore, United Kingdom and the United States. The survey captured 39 Australian markets and the results showed that these markets were considered either ‘seriously unaffordable’ or ‘severely unaffordable’. I am not sure if this survey utilises the best methodology as there are significant differences between countries in regards to taxes and standards of housing and it doesn’t consider the factors mentioned above.
Overall housing affordability can discourage people from upsizing and downsizing and discourage movement intra or interstate for employment. The group most affected by housing affordability is those who don’t as yet own a home. In consideration of the housing affordability survey and influencing factors, I think housing affordability comes down to individual circumstances. You need to ask yourself the tough question – can you afford to be a home owner?