(Australian Associated Press)
A jump in house prices has cut into the benefits of low interest rates and higher wages, once again making owning a home an increasingly unaffordable proposition in Australia.
Renewed price growth in September, particularly in Sydney and Melbourne, erased some of the improvements made in affordability in the past year, according to ratings agency Moody’s.
In the year to September, average mortgage rates declined from 5.45 per cent to 5.25 per cent as the Reserve Bank twice cut the cash rate, and average weekly household income rose 2.1 percentage points in the year to May.
Australian households were spending less of their monthly income on their mortgage than they were a year ago, on average, Moody’s said in its report on the Australian mortgage market.
“However, the positive influence on housing affordability from lower interest rates was wiped out by resurgent housing prices, which rose in the wake of the interest rate cuts,” Moody’s said.
Prices increased by an average of 2.7 per cent across Australia in September, the agency said, raising the percentage of household income needed to meet repayments by an average of 0.7 percentage point.
If this pace of house price growth were to continue, it would lead to a deterioration in affordability, Moody’s said.
Sydney and Melbourne mortgages were the riskiest in Australia, with higher housing prices in those cities leading to bigger loans, it said.
Sydney remains the least affordable city in Australia, with more than 36 per cent of household income on average needed to meet monthly mortgage repayments.
Melbourne is next in line, with households pouring 29.9 per cent of their monthly income on mortgage repayments.
But national housing affordability remains better than the average for the past 10 years, according to the report.
The agency also warned Australian residential mortgage backed securities would take a hit if such a deterioration occurred.