Australian property most affordable in years

So says Moody’s:

Australian housing affordability, which improved over the year to September, will continue to improve slightly over the next 12 months, because of low mortgage interest rates and lower housing prices.

» Affordability will continue to improve on low mortgage rates and lower housing prices. Australian households with two income earners needed 23.0% of monthly income to meet mortgage repayments on new loans in September 2020, down from 25.1% a year earlier. We expect low interest rates for the foreseeable future and lower housing prices over the next 12 months, further improving housing affordability. Conversely, household incomes will come under pressure in coming months as coronavirus-related government income support measures end, but in respect of housing affordability, we do not expect this to outweigh low mortgage interest rates and lower housing prices.
» Housing affordability improved in all major capital cities in 2020. Housing affordability improved in Sydney, Melbourne, Brisbane, Perth and Adelaide over the year to September 2020. For all capital cities, housing was the most affordable or near the most affordable in a decade in September. The affordability of apartments and houses improved in all capital cities over the year to September.

Affordability will continue to improve on low mortgage rates and lower housing prices

Housing affordability for new mortgage borrowers – which we measure as the proportion of household income borrowers need to meet repayments on new mortgages – improved on average in Australia over the year to September 2020, because of mortgage interest rate cuts and lower housing price in the wake of the coronavirus pandemic.1

More affordable housing reduces credit risks for new mortgages, which is positive for new residential mortgage-backed securities backed by such loans.

On average, Australian households with two income earners needed 23.0% of their monthly income to meet monthly mortgage repayments on new loans in September 2020, compared with 25.1% in September 2019 and 26.4% on average over the last 10 years. Australian housing prices declined an average 1.5% over the five months to September 2020 because of the economic fallout from the coronavirus, though prices still rose 3.2% over the year to September.

The Reserve Bank of Australia (RBA) lowered the official cash rate to a record low 0.25% in March to combat the economic downturn triggered by the pandemic, driving mortgage interest rates down. Government assistance payments have supported household incomes since the coronavirus pandemic. Before the pandemic, average household incomes were increasing, rising 5.4% over the year to May.

We expect housing affordability will continue to improve moderately over the next 12 months. We expect interest rates to remain low for the foreseeable future. Housing prices will likely see some downward pressure as the result of the macroeconomic weakness, albeit the impact may be muted due to the low interest rates. Conversely, household incomes will come under pressure in coming months as government income support measures such as Jobkeeper and Jobseeker end, but we do not expect this to outweigh the impact of low mortgage interest rates and housing price movements.

Exhibit 1 shows changes in our housing affordability measure, annual household incomes, median housing sales prices and mortgage interest rates.

Housing affordability improved in all major capital cities in 2020

Housing affordability improved in all major Australian capital cities over the year to September 2020. For all capital cities, housing was the most affordable or near the most affordable in a decade in September 2020.

In Sydney, new borrowers needed 29.9% of household income to meet mortgages repayments in September, compared with 30.9% a year earlier and 32.7% on average over the last 10 years. However, Sydney remained the least affordable city for housing in Australia.

The Sydney median housing price fell 1.6% over the five months to September 2020 because of the coronavirus outbreak, but still rose 6.7% over the year to September 2020.

In Melbourne, new borrowers needed 24.6% of household income to meet mortgage repayments in September 2020, compared with 27.0% a year earlier and 27.8% on average over the last 10 years. The Melbourne median housing price fell 2.2% in the five months to September, but increased 4.1% over the year to September 2020.

In Brisbane, new borrowers needed 18.7% of household income to meet mortgage repayments in September 2020, the lowest in a decade and down from 21.0% a year earlier. Brisbane housing prices were stable over the 12 months to September 2020.

In Perth, new borrowers needed 15.0% of household income to meet mortgages repayments in September 2020, the lowest in a decade and down from 17.4% a year earlier. Perth is the most affordable capital city for housing in Australia. The Perth median housing price declined 1.1% over the year to September 2020, the most of any major Australian city.

In Adelaide, new borrowers needed 19.0% of household income to meet mortgages repayments in September 2020, compared with 19.8% a year earlier and 21.6% on average over the last 10 years. The city’s median housing price increased 8.1% over the year to September 2020.

Exhibit 2 shows that housing affordability improved in all major capital cities.

The affordability of apartments and houses improved in all capital cities over the year to September 2020, as Exhibit 3 shows.

Owner-occupiers bidding up prices today have only themselves to blame.

David Llewellyn-Smith
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Comments

  1. Super boost to house deposits should be fading soon? And second wave of job losses is still getting started. There may be a slower third wave in LNG etc from other countries green recovery plans

    • Second wave of job losses is here. And im in it. Got my marching orders today. But dont worry. The company will now have access to large numbers of 18-35 foreigners whos salary will be subsidized by the taxes i paid all these years. Is it irony that my taxes have contributed to me getting let go ? Not sure.

      • I’m very sorry to hear that. I hope you’ll be ok. And yes irony is strong in Straya cos it applies to the welfarethat draws many migrants here that contributes to our decreased work conditions across the board.

          • You can.
            But it will take adapting your skills, and just like the Finance Industry and the Real Estate ‘Industry’ those new dodgy skills require that you recognise that “If you don’t do it, someone else will – so it may as well be me!”

          • Yeah na you cant. Ageism is alive and well in our society, but it seems worse in IT/Dev and it dont matter what your skill set is. 30 year old team leads dont want old guys on their team. Because apparently they cant learn and will always object to everything.
            But now its even better.
            Now my taxes are literally keeping me out of a job, thats going to a 18-35.

          • boomengineeringMEMBER

            Hey Angry,
            That happened in the engineering trades years ago, where if you were over 35 you weren’t considered. This may have been attributed to new skillsets, ability to lift heavy, agility, perceived ability’s to work long OT or less likely to claim compo, not sure of the real reason, BUT then years later they realized the years of experience was worth something, also the oldies were more reliable. and no lifting of heavy parts was allowed anymore anyhow.
            This realization took years so hopefully you can ride out the storm until the light bulb moment arrives.
            Good luck for the future.. ps while you’re idle conjure up some change in vocation idea’s you never know where it will take you.

          • Right on Angry, and Janet not so easy, not at all common. Doesn’t matter how up to date your skills and ability are, if you get a software developer role, past your late 40s, into early 50s, either, you’re lucky, know someone, or there is a very strong demand for developers, with a not so large supply, or all of the above.

            You can be highly skilled, and experienced with today’s technologys, becoming tomorrow’s ones too in, Python, Java, JavaScript, Node.js, C#, T-SQL, PL/SQL, all webdev stuff, Windows and IIS, Linux and Apache or Nginx (more unix that one).

            I had two agents (same agency) tell me, …they saw what year you finished uni, didn’t need to say anything after that. I took out the Uni finish date, and was told by the other agent, …it doesn’t matter, even if you only state your experience for the past 7 years, they can still get a good idea on how old you are.

            Doesn’t matter how good you are, even if you’re exceedingly better than the “younger” developers with 2-5 years experience, the exit door will open for you.

            Had a an I.T manager tell me 6-7 years ago, the company determined it was cheaper for them to have a visa-person constantly recitify bugs/crashes, than to have an experienced person (I know he meant citizen), get it right the first or second time.

            Angry, to be a bit technical, was contracting for one of the big four, had a few younger newbies, one of who I was trying to show the beauty of OO development, in the nicest most basic way, but he couldn’t for the life of me, or him, break out of putting one huge function per class! And they say we don’t learn! He’s got a computer science degree to boot! Well my contract wasn’t exented, nothing bitter, I was with them for a good while.

            I’ll stop here.

          • @ErmingtonPlumbing
            Digging a hole? Yeah years of sitting at a desk have taken its toll on me combined with both knee injuries from when I was younger kinda rule out physical labour.
            When they say sitting is the new smoking they are right. Don’t let a desk job turn you into a walking pain factory.

      • Sorry to hear that, Angry.
        The Coal-ition somehow managed to take a policy for making work even more precarious, and sell it to the gullible Australian public as if it were for the purpose of helping young people.

        • Another day, another dim-witted Gubmint scheme — they appear to never run out of stupid things to do.

          Just when you think you’ve seen it all, a committee of bureaucrats has a spectacular collective brain fart.

      • my toranaMEMBER

        Sorry to hear that, it’s a bad policy and ageism is alive and well.
        Soon I feel like the youth of Australia will head off to the US for work so maybe that will help.

      • Sorry to hear it too, AngryMan.

        Take care of yourself and your loved ones.

        Stay mindful of your attitude. That will determine your future.

      • Sorry to hear Angry. Experience and maturity is invaluable, just need to find that niche. Similar happened to me. All the best.

      • Sorry to hear that mate.

        That ‘industry’ is full of bullsh*t and indeed – ageism is alive and kicking. Funny thing is though – the very same crumbs who make these decisions, also complain that the cheapies they got are nowhere near as good as the old boots they got rid of because of “muh monay!”.

        If you have a penchant for security – you may want to dip a toe in that cesspool – the scope is a broad as it is deep and long. So much shïte code and procedures out there, the head hurts!

        • This ^

          And ML and data and analytics – especially in health. This is the space I am in. Lots of scope.

      • Sorry to hear that AngryMan. Been there 9 years ago and not fun, despite some clowns here thinking everyone on JS is a bludger and wants to be on it.

        Best of luck – what line of work are you in?

        Edit: just saw. Much as it sucks, any chance of picking up some gig work on AirTasker etc.

        What kind of software dev?

      • This was always going to happen, it is no mistake or surprise to the government they must have done their sums and older workers less likely LNP younger types more likely LNP voters. Looking for advice on this one.

      • I am sorry to hear that Angry Man it is a time to stay strong.I am in a similar situation currently stuck in a job I hate but can not find another job to move on as I am in mid 50s.Maybe it is time to follow our heart and do something we are passionate about it it need not be in our area of expertise.

      • Took me 3 or 4 months to find work after I left my last job as Covid was coming. IT jobs are still actively being listed. I went through a lot of shiit recruiters first.

        You’ll find another job, just at lower pay.

      • Apparently the JobMaker subsidy is only for 18-35s who are on 3 types of existing gov support (JS, and I presume Youth Allowance and probably Austudy). I’ve seen ABC whinge articles of young Aussies not on any support saying it’s not fair they are excluded from the scheme. So at the very least no incoming migrant will be keeping you out of a job due to JS though of course your industry totally sucks for being replaced by migrant labour. Finger’s crossed they do not extend this horrific scheme. It will be responsible for a lot of semi-skilled labour in Straya exiting the workforce permanently, and entering into poverty if they didn’t manage to pay off their mortgage. If I ever see Johsie boy I’d be tempted to spit in his face for this policy. It will absolutely destroy hundreds of thousands of livelihoods in this country.

      • billygoatMEMBER

        Sorry to hear that Angry M.
        Probably subsidise workplace training through free tafe ..cert 4 courses etc.

    • Exactly, affordability in bankers and running mates is just a matter of getting mortgaged. Not the truth, lowest interest rates in 5000 years won’t last, the principal has to be paid, horrendously, over decades which is exactly what the looming predatory banks wants, constant income from you for a lifetime if possible. I well remember being harangued. some years back by the RBA, told to stop whining about house prices, get in and buy, buy, the interest rates are so low. Psychopaths and sadists all, give us your money, your life, a finger hold on your home and put your babies into childcare so you both pay our mortgage, oh, and offset deposits are an unsecured loan to us.

  2. reusachtigeMEMBER

    We have a great property market where it always becomes more affordable as the value increases. Only those who don’t get on the ladder lose in the end.

  3. Red letter day…it has taken me 18 months but I have finally convinced my nephew to reduce his gearing on his IP’s to 60% from over 90%. It was probably the $100,000 sub they had to give the bank when they made them sell a $1,000,000 unit more than me but I kept the pressure on. Next step selling one more to get gearing under 40%.

    • I don’t think so, at least we won’t see big falls. TFF means that banks get free money to lend and make a margin on any rate above zero. Interest only loans for all the JobSeekers.

      Bank profits generated from being middle men between government bonds and the RBA QE program.

      No need to forclose non performing loans. Just extend and pretend until the border flood gates are opened again. If that takes 2-3 years so be it.

    • billygoatMEMBER

      Bond now sits at 6 – 8 week rent up front. Once upon a time it was 4 weeeks/1 month. LL will want the extra to cover crazy rents/ mortgage value & over capitalised kitchens & bathrooms ..expensive but poorly done (ikea /Bunnings) so will get hammered by 12 month wear & year from [email protected] tenants

  4. my toranaMEMBER

    Today’s the day the property bears have their picnic.

    Or maybe in a year’s time. All three of them.

  5. Display NameMEMBER

    I cannot see that the current state of affairs is in any way sustainable. With near zero rates, banks will make almost no money. Bids up asset prices, wages going nowhere. Something will give at some point. It just doesn’t make sense.

    • Yeah, we’ve all been saying that on this site for a long time, but when is the question? 18 months is I believe the answer. 🙂

      • happy valleyMEMBER

        +1 Under happy clappy Captain Phil and his Mengeles experiment on the financial system, all banks will within 18 months, be charging depositors for the privilege of them losing the depositors’ money for them on dodgy loans under Josh Rainbowberg’s great new wave of irresponsible lending.

      • Nah that didn’t happen. It’s owner occupier’s fault. Cut the rates and centralise more monetary power to the RBA. What could go wrong, it’s worked so well thus far.

    • It’s a fake market. Bank profits to be generated through QE bond purchases and TFF RBA hand outs.

      Rates on financial products like spreads between deposits and loans? That’s so 2019.

  6. Silly analysis that can demonstrated by the simple scenario that as mortgage rates drop to zero houses become infinitely affordable.

    The second issue is that their “analysis” is taking AVERAGE income with MEDIAN house prices.

    Third issue is this “analysis” is hypothetical. That is is it is assuming people borrow the proportional average amount based on their income. That is not the case as shown in debt to income ratios which is still it the stratosphere. What happen is that as rates drop, people take out more so net affordability affect is zero.

    Finally, they never discuss loan durations in these studies. Again as duration approaches life span and beyond it technically also becomes infinitely affordable.

    In other words once your mortgage rate goes to zero take out a 100 year IR only loan and you should be able to afford whatever you want

  7. RobotSenseiMEMBER

    More affordable housing reduces credit risks for new mortgages, which is positive for new residential mortgage-backed securities backed by such loans.
    Haven’t we seen this play before?

  8. Affordability has gone from absolute farce of a captured quango rip off to slightly less. Housing affordability = loan serviceability. Doesn’t mean shelter isn’t a rip off compared to previous generations. And I guess people who aren’t bidding up shelter prices have owner occupiers to blame, however that doesn’t really change much, particularly the shelter inflation of the last decade.

  9. It’s farcical that as home prices rise they become more “affordable” with lower interest rates. Good luck affording the deposit or paying down the principle, unless your parents can afford to “shell out” with the inter generational transfers. Demand for houses in my established area of Sydney (The Hills area) are surging despite the recession. For what I paid in 2012 in Baulkham Hills (4 bed, 3 bath, 2.5 garage, pool) you can now only get a small 3 bed strata townhouse in new developments at Schofields which is about 15 km further out from the CBD.

  10. Just wondering whether setting up a bank with a large group of friends might be the way to go. I used to get notice of affordable offshore banking template kits for various desirable locations.