Australian housing affordability deteriorated in February

Australian housing

Property prices have risen 4.7% over the five months to February, with demand from owner-occupiers and first-home buyers driving the growth

A new report has revealed it takes almost a quarter of the average dual-income household’s monthly pay to meet home loan repayments on new loans.

Australian housing affordability deteriorated in February, reversing the improved trend seen in the second and third quarter of last year, during peak-COVID, according to Moody’s Investor’s Service.

On average, two income earners needed 24.6% of their monthly income to make monthly mortgage repayments in February, compared to 23.0% in September, and 22.7% in June and July, when new mortgages were the most affordable in a decade.

Property prices have risen 4.7% over the five months to February, with demand from owner-occupiers and first-home buyers being key drivers of the growth.

Housing affordability across all capital cities worsened in the five months to February, with Perth the most affordable and Sydney the least.

However, housing affordability remained better than the ten-year average of 26.1% and well under its peak of 30.7% in April 2011, as the average mortgage interest rate has almost halved to 3.65% since 2011.

But the worst may be yet to come, with affordability to continue to deteriorate as prices rise this year, according to Moody’s analyst Pratik Joshi.

Our model shows that housing prices or interest rates would have to increase materially (by 24.9% or 225 basis points respectively) for affordability to deteriorate to its worse level in a decade, Mr Joshi said.

A 15% increase in housing prices combined with 100 basis point increase in interest rates would have the same impact, he said.

Westpac has forecast property prices will increase 20% in the next two years, while Commonwealth Bank forecasts a 16% rise.

Moody’s reported that as government schemes like JobKeeper come to an end, household incomes would further fall, worsening housing affordability.

Moody’s found new buyers in Sydney required 31.3% of their household income to meet mortgage repayments in February, the worst in the country.

Melbourne was the next worst, requiring 27.1% of household income, followed by Adelaide (20.1%), Brisbane (19.9%), and Perth (16.5%).

The report found for every 10% change in housing prices, the percentage of income households needed to service their mortgage changed by 2.5 percentage points on average.

For affordability to be the worst in a decade, house prices would need to rise on average 24.9%, but only 18.3% in Sydney, 20.4% in Melbourne, and a whopping 38.9% in Brisbane.

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