At the risk of beginning to sound like a broken record, I will again turn to the topic of housing affordability this week. Since my last blog regarding the subject another report has been released which further highlights that housing affordability in Australia continues to worsen.
The Real Estate Institute of Australia's Deposit Power Housing Affordability Report recorded the sixth consecutive quarterly decline in housing affordability in Australia over the June quarter. Decreases were seen across all states and territories, with the exception of the Northern Territory and Tasmania.
Of particular concern in the report is that a national increase was seen in the percentage of income required to meet loan repayments. In the June quarter it rose by two per cent, with the proportion heading towards 35 per cent – a level not seen since 1990 when interest rates were as high as 16.4 per cent.
For many Australian home owners, this rising percentage of monthly income needed to service a mortgage could place greater strain on the household, reducing the amount that can be spent on general day to day expenses.
And with the ongoing concern that the Reserve Bank of Australia could lift interest rates over the coming months, this proportion of monthly income required make loan repayments may be at risk of increasing further.
So what steps can Australian households take to safeguard themselves against the current conditions in the housing market? I would start by reinforcing the importance of having a good, working budget in place.
Having a budget that considers both incoming revenues and expenditures for at least three months into the future should help households to plan and allocate funds effectively. Taking into account these extra months, as opposed to simply the current month, will enable the sharing of income across time periods if needed.
For example, you may find that your expenses for October are lighter than usual however November will see several larger one-off payments due, such as car registration. Instead of using the extra money in October for unnecessary spending, this forward planning will allow you to deal with November's payments efficiently, thus reducing the stress on your budget.
Budgeting and planning could be the key for Australian households to stay well positioned during periods of uncertainty in the housing market. The steps are also important even when conditions are good. As you never know when unexpected expenditures may arise, planning will enable you to deal with unforeseen but necessary costs in an effective way.