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Housing at its most affordable level in a decade

Housing at its most affordable level in a decade

Falling property prices and cheap mortgage rates have led to housing reaching its most affordable level in ten years, according to analysts.

People are spending a smaller portion of their pay on their mortgage, investor service Moody’s has found, indicating housing affordability has dropped to a fresh new low.

Two income households were spending 23 per cent of their monthly earnings on mortgage repayments in September, Moody’s said. This was a drop from the ten year average of 26 per cent.

“The affordability of apartments and houses improved in all capital cities over the year to September,” the analysts said.

How can more people afford their mortgage during a pandemic?

Housing affordability was up across the country for a variety of reasons, including falling property prices and record low interest rates.

Property prices have been falling nationally for the last five months due to the tumult of the coronavirus pandemic.

“Australian housing prices declined an average 1.5 per cent over the five months to September 2020 because of the economic fallout from the coronavirus,” the analysts said, “though prices still rose 3.2 per cent over the year to September.”

The Australian Bureau of Statistics estimates the typical property has shed $12,500 in value since the beginning of the year.

This drop in property prices is also coupled with housing loans becoming generally cheaper. The cash rate -- a guardpost used by banks to set interest rates on loans and savings accounts -- is at its lowest level since record keeping began in 30 years.

And there’s a good chance it’ll drop further come November 3, as Reserve Bank of Australia executives hint an extraordinary drop from 0.25 to 0.10 per cent could possibly occur.

Relief across the country

The confluence of falling housing prices and dropping interest rates led to housing becoming more affordable across the country, Moody’s said.

The country’s most expensive city was almost twice as costly as its most affordable.

Sydneysiders were spending 30 per cent of their income repaying their mortgages in September, a drop of 3 per cent compared to the ten year average. Melbournites were spending a 25 per cent share, about 4 per cent less than the decade average.

Even states where housing was more affordable were experiencing drops.

People in Brisbane were spending 19 per cent of their monthly pay on a mortgage, a drop of 2 per cent compared to the same period a year earlier.

But housing was most affordable in Perth, where people were spending 15 per cent of their monthly pay to cover mortgage repayments, and that was down 2 per cent compared to September’s performance a year earlier.

Better housing affordability, but uncertainty awaits

The effects of the COVID-19 pandemic and the measures used to cushion the financial blow are likely to improve housing affordability over the next year.

“We expect low interest rates for the foreseeable future and lower housing prices over the next 12 months, further improving housing affordability,” Moody’s said.

But the future remains uncertain. The government’s COVID-19 stimulus payments -- namely JobSeeker, JobKeeper and HomeBuilder -- are beginning to taper off, raising concerns households will feel the financial pain without the safety nets.

“Household incomes will come under pressure in coming months as government income support measures such as Jobkeeper and Jobseeker end,” the analysts said, “but we do not expect this to outweigh the impact of low mortgage interest rates and housing price movements.”

Refinancing rush as people want even more affordability

Another reason why housing affordability could’ve improved has to do with people refinancing their mortgages as they secure better deals. Refinancing jumped by 27 per cent in the nine months since the beginning of the year, according to e-conveyancing platform PEXA.

Banks are competing to win new customers. A RateCity analysis found 29 banks are offering cashback deals up to $4000 -- double the number of banks preceding the COVID-19 pandemic in February.

“The rise in refinancing is forcing banks to be more competitive than ever,” Sally Tindall said, research director at RateCity.

“Banks need to be winning new business, not losing it, and they’re throwing large sums of cash at anyone willing to refinance, particularly if they’ve got a good track record of paying down their debt and a steady job.”

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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