Housing affordability worsening amid rising property prices: Moody's
Credit rating firm Moody's Investors Service says housing affordability deteriorated on average across Australia over the year to March 2017, which is a credit negative for Australian residential mortgage backed securities (RMBS).
Moody's conclusions are contained in a just-released report, RMBS -- Australia: Housing Affordability Worsening Amid Rising Property Prices, and measures housing affordability as the proportion of household income needed to meet mortgage repayments.
Less affordable mortgages increase the risk of delinquencies and defaults and are therefore are a credit negative for Australian RMBS, it says.
Housing affordability has been a hot topic ahead of the May 9 federal budget, and Treasurer Scott Morrison has also spoken about it in a recent speech.
"Rising housing prices outstripped the positive effects of lower interest rates and moderate income growth," said Alena Chen, a senior analyst at Moody's.
"In the near term, we expect housing affordability to continue to deteriorate because of ongoing housing price increases.”
On average across Australia, Australian households with two income earners needed 27.9 percent of their monthly income to meet monthly mortgage repayments in March 2017, up from 27.6 percent in March 2016.
Housing affordability deteriorated in Sydney, Melbourne and Adelaide, where housing prices rose the most over the year to March 2017, but improved in Perth and Brisbane.
While household incomes increased by an average 1.6 percent and average mortgage interest rates declined by 0.35 percent percentage points over the year, the positive effects of higher incomes and lower interest rates were outweighed by the 6.4 percent rise in housing prices.
Sydney remains the least affordable city in Australia, with 37.5 percent of household income needed on average to meet monthly mortgage repayments in March 2017, compared to 30.3 percent in Melbourne, 23.9 percent in Brisbane, 23.0 percent in Adelaide and 19.9 percent in Perth.
The affordability of houses worsened over the year to March 2017, while the affordability of apartments was unchanged, it said.
The credit rating firm expects new regulatory measures from APRA to restrict interest-only mortgage lending will have some impact on demand for housing, particularly apartments. But in the near term, there will be upward pressure on housing prices will amid the low interest rate environment.
Moody's also tested the impact of changes to housing prices, incomes and interest rates on housing affordability. Of all Australian cities, Sydney is the most sensitive to changes in the three variables.