The Adelaide Bank/Real Estate Institute of Australia (REIA) has today released its quarterly affordability report, which like the bogus CBA-HIA index released last week, revealed an improvement in home buyer affordability over the March quarter of 2014, with rental affordability worsening.
According to the Adelaide Bank/REIA, the proportion of family income required to meet average loan repayments improved by 0.2% to 30.6%, with loan repayments also 1.5% lower over the year. However, unlike the bogus CBA-HIA index, at least the Adelaide Bank/REIA measure does not claim that housing is the most affordable for 12 years (see next chart).
What makes this quarter’s improvement so curious is the fact that it has come despite negative real wages growth, stable mortgage rates, and ongoing solid house price growth. Indeed according to the Adelaide Bank/REIA release:
During the March quarter, the Reserve Bank of Australia (RBA) left the cash rate on hold at 2.5%. The quarterly average variable standard interest rate remained unchanged at 5.6%. [And] the quarterly average, three year fixed rate remained unchanged over the quarter…
[Yet] the Australian median house price rose by 1.9% over the March quarter, to $606,517.
With such weak income growth, I find it curious that housing affordability could have magically improved, as claimed by the Adelaide Bank/REIA.
In another strange twist, despite house price gains far outpacing rental growth, rental affordability worsened over the quarter, according to the Adelaide Bank/REIA, with the proportion of median weekly family income spent on rent rising by 0.3% to 25.7%:
Finally, in true vested interest fashion, the president of the REIA, Peter Bushby, congratulates the Abbott Government for not making changes to negative gearing, arguing that reform would have had detrimental impacts on rental supply, rental affordability, and wealth creation:
REIA was pleased to see no change to negative gearing in the Budget. Negative gearing is complementary to the goals of the Housing Affordability Fund (HAF) in addressing the supply of rental accommodation and its abolition would result in a dwindling supply of properties for rent, escalate rents and reduce opportunities for low to middle income earning Australians to create wealth for retirement.
For those wanting a detailed dissection of Bushby’s spurious arguments on negative gearing, see here and here.
