Housing affordability deteriorating: Moody’s

by Miklos Bolza27 Apr 2017
Housing affordability has deteriorated on average across Australia over the year to March 2017, according to analysts from Moody’s Investors Service.

The agency gave a negative credit rating to Australian residential mortgage backed securities (RMBS) as rising house prices outstrip the positive effects of lower interest rates and moderate income growth.

“In the near term, we expect housing affordability to continue to deteriorate because of ongoing housing price increases,” said Alena Chen, vice president and senior analyst at Moody’s.

These results come from a recently released report, RMBS – Australia: Housing Affordability Worsening Amid Rising Property Prices, which measures affordability as the proportion of household income needed to meet mortgage repayments.

On average as of March 2017, Australian households with two income earners needed 27.9% of their monthly income to meet regular mortgage repayments. This was slightly up from 27.6% in March 2016.

These less affordable mortgages plus the increased risks of delinquencies and defaults were the reasons behind this negative credit rating.

Moody’s found that housing affordability decreased in Sydney, Melbourne and Adelaide while improving in Perth and Brisbane.

Sydney is the least affordable city in Australia with 37.5% of average household income needed to meet monthly mortgage repayments. This percentage drops to 30.3% in Melbourne, 23.9% in Brisbane, 23.0% in Adelaide and 19.9% in Perth.

National affordability levels worsened amongst houses with home owners spending 29.3% of their income to meet monthly mortgage repayments in March 2017 (up 0.2% from the year before). Affordability for apartment owners remained unchanged with 24.5% of the average household income required.

Analysts predict that new regulatory restrictions on interest-only lending would have some impact on the demand for housing, dampening demand for apartments. However, they forecast that upward pressure on house prices will still continue in the low interest environment. Increasing divergence between housing prices and income growth will also place further stress on housing affordability.

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