Housing affordability just got worse across Australia

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Housing affordability for new borrowers deteriorated on average across Australia over the year to September, says Moody’s Investors Service.

Sydney, Perth and Adelaide have seen a slight improvement in affordability, measured as the proportion of household income needed to meet mortgage repayments, while it just got harder to buy a home in Melbourne and Brisbane.

“The improvement in Sydney, which has resulted from a slight decline in prices from high levels, is a positive development in a city where housing affordability has deteriorated considerably since 2012,” says senior analyst Alena Chen.

“However, with affordability deteriorating on average on an Australia-wide basis, we believe housing market imbalances and the large buildup of household debt continue to pose risks to the performance of Australian residential mortgage-backed securities.”

Moody’s says high debt levels make households more vulnerable to economic or housing market shocks, and make meeting mortgage repayments more difficult, increasing the risk of delinquencies and defaults.

On average, Australian households with two income earners taking out an 80% loan-to-value loan, needed 28.7% of their monthly income to meet monthly mortgage repayments in September, up from 27.4% 12 months ago.

The housing market in Sydney has shown signs of cooling since the introduction of regulatory measures to curb the origination of interest-only loans and housing investment loans.

Despite the improvement, Sydney is still the least affordable city in Australia.

The Moody’s analysis also shows that housing affordability in Sydney is more sensitive to changes in housing prices, household incomes and interest rates than other Australian cities.

One sensitivity test shows that for every 10% change in housing prices, the percentage of household income needed to meet mortgage repayments changes by an average of 2.9 percentage points on average in Australia.

In Sydney, a 10% change in housing prices results in a 3.6 percentage-point change in the percentage of household income needed to meet mortgage repayments.

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