Moody's Investors Service predicts that housing affordability will deteriorate in 2020

Housing affordability will deteriorate throughout 2020, according to a report from Moody's Investors Service.

Housing affordability for new mortgage borrowers - measured as the proportion of household income borrowers need to meet repayments on new mortgages – improved on average in Australia over the year to September 2019.

I noted that mortgage interest rate cuts and housing price declines were responsible. 

However, affordability has deteriorated since July 2019 because of a housing price rebound, particularly in Sydney and Melbourne. 

The study predicts that housing affordability will deteriorate over 2020 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, Moody's said.

On average, Australian households with two income earners needed 24.6% of their monthly income to meet monthly mortgage repayments on new loans in September 2019, down from 26.7% in September 2018 but up from 24.2% in July 2019. 

Australian housing prices decreased an average 1.6% over the year to September 2019, while average household income increased 2.5% and average mortgage interest rates declined by 0.4 percentage point after the Reserve Bank of Australia lowered the official cash rate in June and July 2019. 

The RBA cut the cash rate further in October, which is positive for affordability, however the study predicts that this will be outweighed by rising housing prices over 2020. 

Housing prices increased 1.7% in the two months to September.