Housing affordability set to improve with softening market: Moody's

Affordability is set to moderately improve in 2018, mainly as a result of softening housing market conditions, a new report from Moody’s says.

Over the year to March 2018, Sydney showed the greatest improvement in affordability with Perth not far behind, largely due to housing prices falling 3.1% and 3.6% respectively.

However, affordability deteriorated in both Melbourne and Adelaide, Moody’s The RMBS - Australia: Housing affordability to improve on property market slowdown report suggested.

The firm says that median housing prices in Sydney are likely to continue to cool, while Melbourne's prices will continue to show tempered growth during the rest of the year.

The report also says that more affordable mortgages decrease the risk of loan delinquencies and defaults.

On average, Australian households with two income earners taking out an 80% loan-to-value mortgage needed 28.2% of their monthly income to meet monthly mortgage repayments in March 2018, down marginally from 28.3% in March 2017, says Alena Chen, a Moody's Vice President and Senior Analyst.

"Housing affordability for new mortgage borrowers — measured as the proportion of household income needed to meet mortgage repayments — improved marginally on average across Australia over the year to March 2018, because lower interest rates and moderate income growth outstripped the effect of higher housing prices.

"Looking at the rest of 2018, we expect housing affordability to continue to improve moderately on average because of softening housing market conditions, particularly in Sydney and to a lesser extent Melbourne.

"On average across Australia, housing affordability in March 2018 was also better than the average for the past 10 years."