Wages, Loan Costs Beat House Prices

Falling interest rates and higher wages have given Sydney people buying a home the best conditions for the past 2 1/2 years, despite rising property prices, according to a housing survey.

The average Sydney home was 6 per cent more affordable to buy in the March quarter than three months ago, but Citibank's senior economist, Ms Annette Beacher , said now was the time to buy, as property prices are likely to take off.

"Sydney's affordability is picking up, but it will be harder to get further improvement because of house-price inflation," Ms Beacher said.

A joint Citibank and Real Estate Institute of Australia (REIA) survey of home affordability found the size of the average housing loan rose by 2 per cent in the March quarter to cover the higher home prices, but monthly repayments fell by 5 per cent, courtesy of the lowest mortgage interest rates since September 1973.

Sydney remained the toughest Australian city in which to buy a home, with the lowest affordability index, while Canberrans faced the best conditions.

An average family home in Sydney cost $226,000 in the three months to March, with repayments taking up 28 per cent of average income, while a Canberra home on average cost $144,000, requiring just 14 per cent of income to finance it.

An average Melbourne home cost $158,000, taking up 21 per cent of an average income to meet the repayments.

Australia-wide, home loans are more affordable than they have been since September 1994, after seven consecutive monthly improvements.

Slightly higher family incomes - up from $810 a week to $813 - also helped to boost potential homebuying capacity.

Cuts in home loan interest rates, driven by the Reserve Bank's four consecutive cuts to market interest rates, have contributed most to more affordable housing.

Ms Beacher said the improved home-buying conditions would help to underpin a surge in housing investment for the rest of the year.

The rest of the economy, however, looked weak, which she said should prompt the Reserve Bank to cut for the fifth time in 12 months after its next board meeting on July 1.

"Housing is doing well, but the economy is sliding, with employment dead, and consumer and business sentiment patchy," she said.

The president of the Real Estate Institute of Australia, Mr Don Brindley, warned that higher capital gains tax obligations faced by property investors after changes in the last Budget would cut into the improvements in affordability.