Housing affordability best it’s been in a decade: report

Great news for homeowners and prospective buyers: housing affordability is at its best level in a decade and should continue to improve throughout 2021.

Housing affordability improved in all major Australian cities over the year to September 2020 despite the ongoing global pandemic, according to a new report by investor service Moody’s.

“Owning a house was the most affordable it’s been in a decade in most major capital cities during the last six months,” Moody’s says.

What is housing affordability?

Put simply, improved housing affordability means that households are spending a smaller portion of their monthly income on their mortgage.

Two-income households, for example, needed 23% of monthly income to repay new mortgages in September 2020, down from 25.1% a year earlier.

Better yet, Moody’s predicts that housing affordability will continue to improve moderately over the next 12 months because of low mortgage interest rates and a continuation of the mild dip in housing prices.

How is housing affordability measured?

Alrighty, so Moody’s measures housing affordability based on three things: median housing sales prices, average discounted variable mortgage interest rates, and average household income.

Let’s start with median housing sales prices.

Australian median housing sales price fell 1.5% over the six months to September 2020, according to Moody’s.

With a number of economists predicting housing values will continue on a mild downward trajectory until about mid-2021 (before going on a two-year surge), that would continue to assist housing affordability over the next year.

Next, interest rates.

At present, the RBA’s official cash rate is at historically low levels, and competition amongst lenders for borrowers is fierce.

That all spells extremely low interest rates for borrowers, which allows for lower monthly mortgage repayments.

And the good news is that most experts expect interest rates to stay low for the next few years while the economy gets itself back on track.

Finally, let’s look at income.

As mentioned earlier, the report found two-income households needed 23% of their monthly income to repay new mortgage loans in September 2020, down from 25.1% a year earlier.

How is this possible during COVID-19?

Well, no doubt a big factor in keeping the nation’s average household income buoyant was the federal government schemes JobKeeper and JobSeeker.

And although household incomes will come under pressure as these support measures come to an end, Moody’s says “this should not outweigh low mortgage interest rates and lower housing prices”.

So is now a good time to buy?

With all this positive housing affordability news in mind, is now a good time to buy?

Well, more than a quarter of Australians (26%) believe now is the time to invest in property to safeguard their future, according to the latest ING Bank survey of 2,000 people.

And Tim Lawless, head of research at leading property expert group CoreLogic, agrees:

“For people with confidence in their own financial circumstances and household balance sheets, arguably this is a good time to be considering a home purchase thanks to the low cost of debt and certainty that rates will remain low for at least the next few years.”

There is also a raft of federal and state government incentives you could take advantage of, including the $25,000 HomeBuilder scheme, first home buyer grants and stamp duty exemptions.

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