Record set on home borrowing

Housing affordability has eased in Canberra, impacted by surging house prices.

This is reflected in record levels of borrowings by owner-occupiers fuelled by low and falling interest rates.

An index of housing affordability that measures the average ACT owner-occupied home loan repayment as a proportion of local average household income increased by 2.8 per cent over the December quarter. Higher index results indicate a higher income proportion of home loan repayments and lower housing affordability.

Although housing affordability declined over the quarter, it remained 3.8 per cent lower than the December quarter 2015 result and well below the peak in the ten year series recorded over the March quarter 2008.

The ABS reported that owner-occupied lending in the ACT excluding refinancing soared to a record $324.5 billion over the December quarter. This was an increase of 36.9 per cent compared to the previous quarter and 9.7 per cent higher than the $295.8 billion recorded over the December quarter 2015.

The average owner-occupied loan was also a new quarterly record for the ACT at $390,668 with the previous high set over March 2015 at $381,210. The ACT loan result was also the second highest of all the states and territories, behind only NSW at $472,382.

The ACT first home buyer home loan repayment affordability index, however, decreased over the December quarter, falling by 1.7 per cent. The index remained 9.0 per cent lower than the December 2015 result. The ACT recorded an average first home buyer loan of $319,002 over the quarter.

The ACT first home buyer deposit saving index also fell by 1.7 per cent over the December quarter but remains just below the ten year index average. The index measures the average home loan deposit as a proportion of local average household income.

Lower interest rates have facilitated repayment affordability but sharply higher prices have by comparison constrained deposit saving capacity by first home buyers.

The Domain Group recorded a record median house price of $684,395 over the December quarter for Canberra and a sharp increase of 5.6 per cent compared to the previous quarter. Cuts to interest rates in May and August last year contributed to higher houses prices. The Reserve Bank, however, has decided to leave official interest rates on hold over March at record-low levels, where they are likely to remain over the outlook.

Dr Andrew Wilson is Domain Group’s chief economist. Twitter@DocAndrewWilson