Sydney Housing Affordability Nearing 10-Year Low
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Sydney Housing Affordability Nearing 10-Year Low

Despite a rise in listings, affordability is worsening.

By Terry Christodoulou
Tue, Oct 26, 2021 1:23pmGrey Clock 2 min

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%.


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House values continued to fall last month, but the pace of decline has slowed, CoreLogic reports.

In signs that the RBA’s aggressive approach to monetary policy is making an impact, CoreLogic’s Home Value Index reveals national dwelling values fell -1.0 percent in November, marking the smallest monthly decline since June.

The drop represents a -7.0 percent decline – or about $53,400 –  since the peak value recorded in April 2022. Research director at CoreLogic, Tim Lawless, said the Sydney and Melbourne markets are leading the way, with the capital cities experiencing the most significant falls. But it’s not all bad news for homeowners.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3 percent,” he said. “That has now reduced by a full percentage point to a decline of -1.3 percent in November.  In July, Melbourne home values were down -1.5 percent over the month, with the monthly decline almost halving last month to -0.8%.”

The rate of decline has also slowed in the smaller capitals, he said.  

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls,” Mr Lawless said. “However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.” 

The RBA has raised the cash rate from 0.10 in April  to 2.85 in November. The board is due to meet again next week, with most experts still predicting a further increase in the cash rate of 25 basis points despite the fall in house values.

Mr Lawless said if interest rates continue to increase, there is potential for declines to ‘reaccelerate’.

“Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Statistics released by the Australian Bureau of Statistics this week also reveal a slowdown in the rate of inflation last month, as higher mortgage repayments and cost of living pressures bite into household budgets.

However, ABS data reveals ongoing labour shortages and high levels of construction continues to fuel higher prices for new housing, although the rate of price growth eased in September and October. 


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