its worst level in a decade. According to Moody’s Investors Service, if house prices in Sydney increases by just 4.6 per cent or if mortgage lending rates soar by a mere 42 basis points, the city will reach its worst affordability in 10 years.
“The worst affordability in a decade is within reach for Sydney,” Pratik Joshi, a Moody’s analyst, wrote. “We expect housing affordability will continue to deteriorate moderately for the rest of 2021 and into early 2022 because property prices will continue to increase while mortgage lending rates and household incomes will stay broadly steady.”
According to AMP Capital’s chief economist Shane Oliver, this form of decline in affordability will eventually lead to a slowdown in the rate of price increases. “The deteriorating housing affordability just makes it harder for people to get into the property market, and historically the demise of most cyclical upswings in Australia’s property markets had been connected to some deterioration in affordability,” he noted.
Nevertheless, Joshi is of the view that an increase in household incomes will be required to improve affordability in Sydney or any other red hot market in the country. Recent figures show that an average new borrower in Sydney will need 35.4 per cent of their household income to pay their home loans, while in Melbourne they will need more than 28.3 per cent and in Brisbane 20.6 per cent.
“In Sydney and Melbourne, the share of household income borrowers need to meet repayments on new mortgages is now worse than the cities’ averages for the past decade,” he wrote. “Our modelling shows that household incomes will have to increase materially to significantly improve affordability, particularly in Sydney.”
