Housing Affordability to Deteriorate Over 2020

Housing affordability for new mortgage borrowers has improved over the year, but Moody's Investors Service expects affordability to deteriorate in 2020 amid a turnaround in the housing market.

The Moody’s report shows housing affordability improved in all major capital cities this year to September 2019 amid the backdrop of historic interest rate lows and the housing market slump.

“On average across each capital city, housing affordability in September this year was better than the respective 10-year averages,” Moody’s vice president Alena Chen said.

“Housing affordability improved because housing prices fell an average 1.6 per cent over the year while mortgage interest rates declined an average 0.4 percentage point,” Chen said.

But Moodys expects affordability to weaken next year. Chen says affordability had begun to deteriorate since mid this year, particularly in Sydney and Melbourne.

“As housing prices continue to increase the risk of delinquencies and defaults in new mortgages will increase as affordability deteriorates, a credit negative for Australian residential mortgage-backed securities,” Chen said.

Corelogic’s October home value index shows house prices made their largest monthly gain in more than four years in October, rising for the fourth consecutive month since hitting the bottom in June.

Australian households with two income earners needed 24.6 per cent of their monthly income to meet monthly mortgage repayments on new loans in September this year, according to the report, down from 26.7 per cent in September 2018.

Housing affordability in 2019

While still Australia’s least affordable city, Sydney’s housing affordability improved more than any other major Australian capital city over the year.

New borrowers in Sydney needed 30.5 per cent of household income to meet mortgage repayments in September, this was down 3.8 percentage points from a year earlier, according to the report.

New borrowers in Melbourne required 26.9 per cent of household income to meet mortgage repayments in September, down from 29.3 per cent a year earlier.

In Brisbane, new borrowers needed 20.7 per cent of household income to meet mortgage repayments, this figure down 1.7 percentage point from a year earlier.