Sydney Leads Affordability Boost as Prices Decline


The average 7 per cent fall in house prices will come as a welcome relief for many Australians as new research reveals that the proportion of household income needed to meet mortgage repayments declined over the year to March.

Credit ratings agency Moody’s has forecast continued improvement in housing affordability as prices continue to retreat over the next 12 months.

With new figures forecasting a peak-to-trough decline of 30 per cent in residential construction and Moody’s predicting declines of 11.4 per cent in Melbourne and 9.3 per cent in Sydney this year — housing affordability for new mortgage borrowers will continue to improve.

“More affordable housing reduces the credit risks of newly-originated mortgages, which is positive for new residential mortgage-backed securities (RMBS) backed by such loans,” Moody’s senior analyst Alena Chen said.

Over the year to March, the proportion of household income needed to meet mortgage repayments — Moody’s measure of housing affordability — declined to 26.5 per cent from 28.7 per cent.

Australian households with two income earners taking out an 80 per cent loan-to-value ratio need an average 26.5 per cent of their monthly income to meet monthly repayments, falling below the 10-year average of 28.7 per cent.

“We expect housing prices to continue to fall moderately over the next year – due to reduced credit supply by the banking sector – and incomes are also rising, and these two factors are in turn driving further improvements in affordability,” Chen said.

House prices have surged 42 per cent in Sydney since early-2013 and 30 per cent across the rest of the country, weighing on household indebtedness and financial stress.

Homelessness has increased 2.8 per cent a year, and it still takes more than 9 years on average for the typical Australian household to save for a 20 per cent deposit.

Moody’s predicts that while house values will continue to fall over the next year, 2020 will be a year of recovery.

“A slow housing recovery in 2020 is likely as the local economy improves thanks to population growth,” Moody’s economist Katrina Ell said.

Related: Falling Property Prices ‘Unusual’ Amid Low Interest Rates, RBA says

Aerial view of Bondi.
Aerial view of Bondi.

Sydney the ‘most sensitive’ to house price changes

Sydney has recorded the largest improvement in housing affordability, with house prices declining 10.7 per cent over the year to March 2019.

Housing affordability improved in Melbourne, Brisbane and Perth over the year to March 2019, while affordability deteriorated in Adelaide.

Moody’s tested the impact of changes to house prices, incomes and interest rates on housing affordability — with Sydney the most sensitive city to changes in all three variables.

“Our sensitivity test shows that for every 10 per cent change in housing prices, the percentage of household income needed to meet mortgage repayments changes by 2.6 percentage points on average in Australia,” Chen said.

“In Sydney, the least affordable city, a 10 per cent change in housing prices results in a 3.3 percentage-point change in the percentage of household income needed to meet mortgage repayments, the most of any Australian city.”

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