First home buyers make use of government grants

Successive interest rate cuts, government incentives and falling property prices have been key factors in driving significant improvements in housing activity for first home buyers. The number of first home owner grants increased from 5,300 in October 2008, to more than 12,800 in January 2009.

The REIA/Deposit Power Housing Affordability Report released last week, stated that housing affordability for the last quarter of 2008 posted the biggest improvement since 1995. REIA president Noel Dyett said "The average household was paying [more than] $300 a month less for their home loan at the end of December 2008 than they were three months earlier."

In June 2008, when interest rates were close to their peak, the average household was estimated to be paying a minimum of 38% of income on mortgage repayments. REIA/Deposit Power analysis indicates that the figure is now closer to just over 32%.

Mortgage repayments greater than 30% of household income is a typical threshold used by the industry to denote whether a housing commitment is unaffordable. Based on this scale, only the ACT, Northern Territory and Western Australia are deemed affordable, with average loan repayments requiring 18, 24 and 27 percent of household income, respectively. NSW still remains the least affordable state despite showing the biggest improvement.

Weak housing approval numbers suggest that second-home buyers and investors are yet to re-enter the market.