House price falls won’t help affordability

House price falls won’t help affordability

House price falls won’t help affordability

Australia’s housing affordability will worsen over the rest of this year as interest rates rise, despite falling property prices and increasing household incomes, Moody’s Investors Service warns.

In a new report, the global credit rating agency says house prices are unlikely to fall enough to offset the interest rate impact.

“Our housing price and interest rate scenarios found that prices will not decline to the extent that housing affordability improves while interest rates increase this year,” Moody’s analyst Si Chen said.

Moody’s modelling shows if the RBA raised the cash rate to 2.85 per cent this year, housing affordability will continue to deteriorate unless house prices dropped by around 22 per cent.

That would be a steeper house price fall than what the rating agency currently expects to occur by the end of this year.

The cash rate currently sits at 0.85 per cent after 75 basis points worth of increases at the May and June RBA board meetings.

Moody’s says in May, Australian households needed 26.8 per cent of monthly income to meet monthly repayments on new mortgages, up from 25.7 per cent in January.

This measure of housing affordability deteriorated in all Australian capital cities in May compared with January and was worse for houses than apartments.

Moody’s also warns worsening housing affordability is credit negative for new mortgages in residential mortgage-backed securities portfolios because it increases the risk of delinquencies and defaults, particularly with inflation raising the costs of living.

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

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