Sydney’s house price crisis worst it’s been for a decade, new report reveals

A crisis that has been bubbling along in Australia for years has reached a terrifying new high – and it’s bad news for Sydney in particular.

Housing affordability has deteriorated to its worst level in a decade in Sydney, despite record low interest rates, with the median house price hitting $1.3 million.

This means a household with an annual income of $135,000 will spend more than 45 per cent of their money servicing their new mortgage, a dramatic increase from February where they needed 36 per cent of their income, analysis by Moody’s Investors Service found.

In more bad news, Sydney will likely reach its worst housing affordability in a decade if prices rise further by a relatively small amount as low interest rates are not enough to offset sharp house price gains, according to Moody’s.

Housing affordability in Sydney is at its worst levels in a decade. Picture: NCA NewsWire/Gaye Gerard

Mortgage rates in Australia sit at their lowest level on record after the Reserve Bank cut the official cash rate to 0.1 per cent last year, while the current average mortgage rate sits at 3.45 per cent.

“In Sydney, house affordability is at its worst than at any time in the past decade. Based on our modelling, Sydney will reach its worst housing affordability in 10 years if prices increase by 4.6 per cent or if average mortgage lending rates rise by just 0.42 percentage points to 3.87 per cent,” said Pratik Joshi, a Moody’s Analyst.

“Australia on average would reach its worst affordability in a decade if housing prices increase by 15 per cent or if the mortgage lending rate rises to its average for last 10 years of 4.79 per cent.”

Melbourne incomes are also being eaten up by mortgage repayments as its median house price creeps towards the million mark, currently sitting at more than $960,000.

Melbourne households are spending an average 32.1 per cent of their incomes on the mortgage, compared to 29.7 per cent in February.

Melbourne auctions are back on the street for the first time in months. Picture: Alex Coppel.

In Sydney and Melbourne, the share of household income borrowers need to meet repayments on new mortgages is now worse than the cities’ averages for the past decade, Mr Joshi found.

While wage rises on the back of relaxed lockdown curbs could help cushion the impact of price increases, affordability could still get worse, it warned.

“Household incomes have been stagnant for the past year. The economic recovery after coronavirus restrictions ease will be positive for wages, though the influx of overseas workers once international borders reopen will dampen income growth,” Moody’s report said.

“All up, we do not expect income growth to materially offset housing price gains over the rest of this year and into 2022.”

While homeowners may be struggling to pay back their mortgage, the prospect is even more grim for first homebuyers looking to break into the market.

New research showed that Sydneysiders would take an average of eight years and two months to save a 20 per cent deposit of $181,500 with a median price of $907,000.

It takes over eight years to save for a house deposit in Sydney. Picture: NCA NewsWire/Gaye Gerard

It found the most expensive LGA in Australia to buy is Sydney’s ritzy eastern suburb of Woollahra, where it would take homebuyers a massive 18 years to save for a deposit, according to Finder’s research.

Melbourne buyers weren’t much better off with an average of seven years and four months to save a deposit of $143,125 to buy a house with a median price of $715,000.

Surprisingly, Hobart was the third most expensive city to buy in with average of six years and four months to save $103,000 to snap up a property with a median value of $515,000.

Darwin was the cheapest city to become a homeowner, taking just three years and six months to save up $88,000 for a house worth $440,000.

Tasmania was the third most expensive place to buy a house in a capital city. Picture: iStock

Sarah Megginson, Finder’s money editor, said property prices had grown faster than incomes in the past few decades.

“In some suburbs, this contrast is more stark than others,” she said.

“It’s mind-boggling just how long it could take homebuyers to save up for a deposit in some of the country’s pricier suburbs.”

“But this doesn’t mean first homebuyers should feel discouraged. Having a realistic budget and starting to save early on – even if it’s just $100 a month – will put you on the right track.”