Are homes in Sydney that unaffordable?

Affordability-on-your-mind-Here-are-a-few-things-that-you-can-measure-it-against-_157_6010888_0_14102960_300Housing affordability is relative term. It can depend entirely on your budget and personal circumstances, or it could rely on what area you are buying into – it can even come down to the type of property you buy. Whenever the media splashes about headlines concerning Sydney’s rising values, it pays to keep in mind that there is no one-size-fits-all equation for working out affordability. There are a number of factors that influence your ability to buy a home.

According to new research by Moody’s, affordability in Sydney has severely declined in March 2015. The study measures how affordable property in based on the proportion of household income required to repay the mortgage when compared to March last year. The Affordability Measure highlights that homeowners in Sydney needed to use 35.1 per cent of their income to pay off their home loan, up from 32.8 per cent in 2014.

Interest rates

However, CoreLogic Analyst Cameron Kusher has outlined some of the key elements that contribute to affordability, as well as the strengths and weakness involved in making a judgement based off these factors. For instance, in an April 27 release, Moody’s noted that the historically low interest rates have given mortgage holders a boost.

However, Mr Kusher notes can differ significantly. While home loan repayments may be more affordable now, he points out that it’s important to measure this over the life of the loan.

“With generational low mortgage rates right now, affordability in many areas looks good but if rates were to normalise affordability would look very different,” Mr Kusher said in an April 29 blog post.

Income

The Moody’s report revealed that Australian households with a home loan needed 27 per cent of their income, on average, to make repayments on their mortgage. However, affordability will go up and down depending on how much a household’s income fluctuates – and Mr Kusher highlighted that it can be difficult to judge just how affordable and unaffordable homes are based purely on these factors, as there are any number of variables that can switch up the equation. While the property sector might be booming, there are other elements that influence people’s ability to buy a home.

The SAS NATSEM Household Budget Report found that homeowners in NSW still hold a healthy standard of living, making an average financial gain of $6,609 year on year to December 2014 – in fact, there was very little change in the cost of living across the state as a whole, despite rising house prices in its capital city.

Apartments versus houses

It can be easy to get carried away with news about property values – but if you drill the figures down to housing types, you might find a bit more comfort. Houses have been the golden goose in the Sydney property market, with prices rising a staggering 10.5 per cent over the year to April 28 according to SQM Research – and the median price has broken through the $1 million mark. However, the median price of a unit is significantly lower – sitting just over $600,000.

It’s worth weighing up your options. An investment house could be fantastic for capital growth, but a unit might a good stepping stone if you’re new to the market.

Whichever way you choose to look at it, affordability is a relative concept and it differs for everyone. This makes it incredibly important to get all the advice and know-how possible before buying or investing in the property market.

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