East coast bias for housing affordability

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November 25 2019
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Excluding Australia’s south-east, housing affordability relative to income has improved over the past 10 years, according to a property research group.

Findings from CoreLogic has reaffirmed what property investors already know – that Sydney, Melbourne and Hobart have grown faster than household wages, making it harder for investors out of the market to catch up.

However, national dwelling values have risen at roughly the same pace as household incomes over the past decade, providing a relatively steady ratio of dwelling values relative to household incomes.

The latest CoreLogic Property Pulse issue released last week showed that nationally, the ratio of dwelling values to household incomes has fluctuated over the past decade, moving through a low of 6.1 in late 2012 to a recent high of 7 in early 2018. In June 2019, the ratio was recorded at 6.5, which is equivalent to where it was in 2009.

A ratio of 6.5 means the typical Australian household is spending 6.5 times their gross annual household income in order to buy a typical dwelling.

Despite most of Australia’s ratio of income to expenses remaining steady, the typical Sydney household is now spending 8.2 times their gross annual household income to buy property, which is up from 6.6 per cent 10 years ago.

Melbourne has increased to 7.2 times their annual income, up from 6.4 times, and Hobart households are now spending 6.5 times income, up from 5.9 times a decade ago.

CoreLogic’s head of research, Tim Lawless, said: “The wash-up from these movements is that housing affordability, based on the ratio of dwelling values to household incomes, is broadly unchanged across Australia, and households are generally dedicating less of their income towards servicing a new mortgage.”

The research also pointed to a similar story with mortgage serviceability, as the cost of credit continues to fall.

Despite mortgage rates falling to their lowest level since at least the 1950s, households in Sydney, Melbourne and Hobart are generally allocating a larger portion of their income towards servicing a new mortgage than they were in 2009.

Based on the proportion of household income required to service a new 80 per cent loan-to-value ratio, Sydney households are dedicating 43.7 per cent of their gross annual household income on mortgage repayments compared with 37.7 per cent 10 years ago. When mortgage rates were around 9 per cent in early 2009, Sydney households were dedicating a much larger 54.2 per cent to service a mortgage.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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