Housing affordability plummeted 31.6% in June

Housing affordability fell by a massive 31.6 per cent nationwide in the year to June 2010, new research shows.

The latest HIA-Commonwealth Bank Housing Affordability Index , which calculates affordability based on the combined impact of home loan interest rates, property prices and household incomes, recorded the sharp fall as it noted that first-time buyers have been squeezed out of the property market over the last twelve months.

Such affordability problems have prompted more Aussies to carefully compare home loans in search of the best deals. According to the index, Melbourne saw the sharpest drop of any capital city, with affordability falling 39.8 per cent in the year to June.

Housing Industry Association economist Harley Dale said that Melbourne's rapidly rising house prices was the main factor behind the affordability crisis.

"They've gone off like a rocket and that obviously doesn't help first home buyers," he told the Herald Sun.

"You've also got interest rate rises coming in last year. (Combine those) and affordability has consequently taken a tumble."

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