Two views of upcoming interest rate rises!

First-time buyer crisis hits outside capitals
By Stephen Johnson
November 27, 2003 – 2:17PM

The housing affordability crisis is at its worse since the 1980s and is hurting first-time home buyers outside capital cities, leading economic experts said today.

The Housing Industry Association – Commonwealth Bank Affordability Report released today said that house prices across the nation rose by 10.1 per cent, in the September quarter, even before offical interest rates were increased by 0.25 per cent to five per cent earlier this month.

House prices in Sydney rose by 30 per over one year but in regional NSW prices jumped by 33.8 per cent, which was 11.3 per cent more than the national average.

The median house price in Sydney now stands at $685,000.

Simon Tennant, the Housing Industry Association’s chief economist, said housing affordability was the worst in 14 years.

“Affordability is worse than it was when interest rates were 17 per cent,” he said.

“I think we’ll see housing affordability stay depressed for quite some time.

“People are looking outside cities to buy their dream home.”

The report said first-time home buyers were paying an average of $1,740 a month on their mortgage, an increase of $159 since June, with the housing affordability index falling by 9.4 per cent.

Mr Tennant said a lack of available housing land and hefty stamp duty were fuelling the housing affordability problem, which would get worse until at least the middle of next year.

“Our view would be we need to get land releases back on line and rein in taxes,” he said.

Geoff Austin, the Commonwealth Bank’s executive general manager of mortgages and investments, said investors looking for tax breaks rather than first-home buyers were taking out most housing loans.

“First home buyers who perhaps can’t afford to service interest costs would look to a strategy of buying an investment property with deductable interest,” he said.

Mr Tennant said falling housing affordability would keep the rental market in a strong position.

Mr Austin expected interest rates to rise by up to one per cent over the next few months while Mr Tennant said they would increase by 0.75 per cent by the end of next year.

This story was found at: http://www.smh.com.au/articles/2003/11/27/1069825899784.html