Affordability Constraints keeping Housing Bubble in Check
According to Residex founder, John Edwards, the recent spate of reductions in interest rates have not been large enough to adequately allow for house price rises, or to inflate a housing market bubble.
Edwards cited affordability constraints as the main reason for keeping house price growth in check.
According to Residex, the average ‘spending power’ left after paying the mortgage or rent is around $880 per month in Sydney, and $1,457 and $1537 per month after paying mortgage and rent in the ACT, respectively.
Commenting on the findings, Edwards pointed out that after paying the mortgage, the cost of living pressures for the median family are substantial.
This means that approximately $1,000 a month is left to pay for energy bills, car loan repayments, clothing and food, resulting in the average family buying a home constrained by affordability.
Therefore, if housing demand is constrained due to price affordability, it follows that there will also be a limit to the rate of capital growth, according to Edwards.