Housing affordability in Sydney is almost the worst in a decade
“Affordability is probably already a factor in slowing the rate of price increase,” he said.
“Deteriorating housing affordability simply makes it harder for people to access the housing market, and historically the disappearance of most cyclical increases in Australian housing markets has been linked to some deterioration in affordability. “
Nationwide, Moody’s expected affordability to hit its worst level in a decade if house prices rose 15% or mortgage rates hit their last 10-year average of 4.79 %.
If house prices rise 15 percent, the share of income to cover mortgage payments will surpass the 28.9 percent peak of the past 10 years for Australia on average.
Moody’s calculates housing affordability as the proportion of average household income that borrowers need to pay off new mortgages based on median home selling prices, a loan-to-value ratio (LTV) of 80% taken on a 25-year principal and interest repayment period, and a lending rate equal to the RBA’s average discounted variable interest rate for homeowners.
On average, Australian dual-income households needed 25.1% of their monthly income to meet monthly mortgage payments in September, down from 24.6% in February and just below the 10-year average of 25.8% .
In Sydney, new borrowers needed 35.4% of household income to pay off their mortgages, far more than the 28.3% needed for Melbourne and 20.6% for Brisbane.
“In Sydney and Melbourne, the share of household borrowers whose income is needed to pay off new mortgages is now worse than the city average over the past decade,” Joshi wrote.
“Our modeling shows that household incomes will need to increase significantly to significantly improve affordability, especially in Sydney.”
If mortgage rates rise 25 basis points, Moody’s modeling shows Sydney homebuyers would need more than 36% of their household income to pay their mortgage payments, while those in Melbourne will need about 29%.
Across the country, this slight increase will bring the share of household income that borrowers need to repay to 25.8%.
Dr Oliver said declining affordability could ultimately lead to mortgage stress.
“When people enter the real estate market when affordability is low, they pay higher mortgage payment levels and this could lead to mortgage stress, potential defaults and other issues along the way,” did he declare.