First time home owners will be better off looking at housing options in Sydney rather than Melbourne based on a report made by the HIA-Commonwealth Bank Housing Affordability Index.

HIA chief economist, Dr. Harley Dale, attributed lower wages in Melbourne and increasing property prices for propelling it to the top spot in the index. "Melbourne has been the least affordable city over the last three quarters," he told the Herald Sun. "Melbourne had a strong surge in home prices up until quite recently and that surge was far greater than anything we've seen elsewhere."

The index took into account interest rates, property prices and household incomes during the September quarter. It ranks Melbourne at 50.8 while Sydney is ranked at 51.5. This was followed by Perth in Western Australia as the next least affordable city for homes at 54.9, followed by the Australian Capital Territory at 57.8, Brisbane at 58.1 then Adelaide at 59.4.

Australia's cheapest city for houses according to the index was Hobart at 71.9 and a running average house price of US$325,000. The city's residents have an average income of US$60,500.

Dale added that because of rising interest rates housing affordability, "is once again on a clear downward trajectory."

"A further rate hike in November will see affordability drop in the December quarter, an outcome obviously not aided by trading banks adding fuel to the mortgage rate fire," he said. "For aspiring home owners trying to break into the housing market, the short-term outlook is a challenging one."

"It now takes an income double the average to affordably service a mortgage on a median-priced dwelling in Australia's two largest cities."