Sydney Housing Affordability Nearing 10-Year Low

Sydney’s housing affordability worries are set to deepen to its worst level in a decade amid surging prices according to modelling by Moody’s Investors Service.

The ratings agency predicts that Sydney will reach its worst affordability in 10 years if prices rise by a further 4.6% or, alternatively, should mortgage lending rates increase by as little as 42 basis points.

Using data from CoreLogic, this level could occur soon as Sydney’s dwelling prices have already surged 1.7% in the past four weeks.

To arrive at a calculation of affordability, Moody’s analysts show housing affordability as the proportion of the average household income borrowers need to meet repayments on new mortgages based on the median housing sales prices, 80 per cent loan-to-value ratio over a 25-year principal and interest repayment period. Then, a lending rate equal to the average discounted variable interest rate for owner-occupiers published by the RBA is applied.

Currently, in Sydney, new borrowers need 35.4% of household income to pay their mortgages – significantly higher than the 28.3% needed for Melbourne and 20.6% for Brisbane.

Moody’s modelling shows that should mortgage lending rates rise by 25 basis points, Sydney’s average homebuyers would need more than 36% of their household incomes to afford mortgage repayments – Melbourne would need roughly 29%.

Across the country, Moody’s report expected affordability to reach its worst level in a decade should housing prices rise by 15% or if the mortgage rate leapt to its average for the past 10 years of 4.79%.

If housing prices increase by 15%, the share of income to meet mortgage repayments will pass the 28.9% peak of the past 10 years for Australia on average.

The average Australian household with two income earners needed 25.1% of monthly income to meet monthly mortgage repayments in September – up from 24.6^ in February and just below the 10-year average of 25.8%.

The Australian housing market is rapidly evolving, with new research revealing changing activity in regional and city areas.

The latest Regional Movers Index from the Commonwealth Bank showed the exodus from Australian cities to the regions is significantly exceeding pre-COVID movements, sitting at 19.8 percent higher. Even more revealing is data which showed relocations are 1.8 percent up on the average recorded during the height of the lockdowns. At the same time, people in regional areas are staying put.

The report is a partnership between the Commonwealth Bank and the Regional Australian Institute. RAI CEO Liz Ritchie said the regions have become the permanent home of choice for more Australians.

“The inter-regional migration index —which tracks regional to regional relocations — has fallen by 5.1 percent, suggesting that more regional residents are content to stay where they are. With the continuing strong jobs market across regional Australia, increasing city property prices and ongoing cost-of-living pressures, it’s no surprise the regions remain desirable,” Ms Ritchie said.

She said this had significant implications for planners, with a better understanding of infrastructure needs required by planners.

“Regional Australia is truly the nation’s new frontier. There are so many opportunities in our regional communities, but likewise we know there are challenges. Housing for example remains a key ongoing concern in many communities,” she said. “Regional Australia is growing and for that to continue we need adequate foundations. The time to lay them is now.”

Among the areas to benefit from this shift over the past quarter was the Hunter Valley city of Maitland in NSW which saw a 3.4 percent increase in net migration from the cities and other regional areas. Long seen as the less desirable locale in the wine growing region, Maitland has attracted more buyers looking for an affordable home with lifestyle benefits. CBA Executive General Manager Regional and Agribusiness Banking Paul Fowler said it was an area on the rise.

“There is significant development happening around Maitland, with extensive land releases for residential, industrial, commercial and retail fuelling strong employment and construction industry opportunities,” Mr Fowler said.

“Maitland is also set to benefit from major investments in the area including the nearby Newcastle Airport which will welcome international flights from 2025, further enhancing the region’s accessibility and economic profile.”

And while Melbourne property prices continue to experience a lull, it’s a different story outside the capital, with regions closer to main city centres performing particularly well.

“A move to regional Victoria remains on trend among those relocating, with the state’s regional areas experiencing the largest surge in popularity in the 12-month period to September 2024, with its share of net regional inflows rising from 21 percent to 30 percent,” Mt Fowler said. “Trending scenic LGAs like Queenscliffe on the coast, as well as Moira, Wangaratta and Strathbogie located further north, offer attractive and more affordable lifestyle opportunities for many Australians.

“With more corporate employers setting up or relocating to Geelong, Queenscliffe’s proximity to Greater Geelong and the Melbourne CBD means more regional Australians can enjoy diverse employment opportunities while living in a beautiful location with enhanced lifestyle opportunities.”

Sydney Housing Affordability Nearing 10-Year Low

Despite a rise in listings, affordability is worsening.

Buyers are moving there in their droves while existing residents know they’re on a good thing