Rates outlook - why we're hurting

WITH home buyers being squeezed like never before, economists are tipping another rate rise when the RBA meets next week.

Rates outlook - why we're hurting

FAMILIES are paying more than a third of their income to meet the average home loan - the highest level on record. With home buyers being squeezed like never before, economists are tipping another interest rate rise when the Reserve Bank meets next week.

The proportion of family income required to meet average home loan repayments rose to 37.4 per cent in the December 2007 quarter.

The Real Estate Institute of Australia said housing affordability was at its worst since it began keeping records 22 years ago.

Renters are faring little better, paying almost 24 per cent of their income on housing.

Analysts predict a 0.25 per cent rate rise on Tuesday.

This would lift the average standard variable mortgage rate to about 8.5 per cent.

Australians for Affordable Housing spokesman David Imber also said things were getting worse.

"This is a structural problem, not a cyclical one. Investors are continuing to bid up existing dwellings and squeezing first-home buyers out of the market,'' he said.

Mr Imber said the more affluent home hunters, who normally spent two or three years saving for a deposit, were renting for longer and squeezing low-income earners from the rental market.

Keith Levy, national manager of finance company Deposit Power, said rising costs of food and petrol, with higher interest rates, were hurting home owners.

"Even though family income and national employment are at record levels, competitive pressures within the mortgage industry have left many people with debts they may not be capable of maintaining,'' he said.

Home affordability deteriorated in the last quarter in all states except Western Australia.

While Australian home owners are hurting, US rates may fall further.

US Federal Reserve chairman Ben Bernanke told Congress the Fed was prepared to cut official short-term interest rates, already at 3 per cent, further if needed.

The rate signal came as US mortgage giant Fannie Mae posted a multi-billion-dollar loss and warned US home prices could fall by up to 7 per cent this year.

The Australian dollar is trading at a 23-year high, levels last seen when stone-washed jeans and hair gel were fashionable and Cyndi Lauper's Girls Just Wanna Have Fun topped the charts.