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New research shows Sydney property more affordable than 26 years ago

Despite high house prices, research from BIS Shrapnel suggests Sydney is more affordable now than it was in 1989.

As the housing affordability debate rages in Sydney new data suggests homeowners today have it far easier than 26 years ago when it comes to paying off the mortgage.

The research from BIS Shrapnel reveals homebuyers were using almost half of their income to pay off their mortgage in 1989, compared with 35.9 per cent now.

“The interest rate was 17 per cent at that time. It spiked so high, the whole country went into recession,” BIS Shrapnel’s senior manager of residential, Angie Zigomanis, said.

BIS Shrapnel’s senior manager of residential, Angie Zigomanis, says homebuyers were using almost half their income to pay off their mortgage in 1989. Photo: Jesse Marlow

Despite higher prices, today’s historicallylow interest rates mean a smaller proportion of homeowners’ incomes go towards paying off the home loan.

Yet John Daley, from the Grattan Institute, warns that an increase in interest rates can change affordability levels in a flash.

“Affordability by these measures relies on interest rates being low,” Mr Daley said.

“When they go up, they’ll go up fast and it’ll be a very different story.”

The best time to be paying off a mortgage was 1997, when just 24 per cent of a homebuyer’s income was needed to pay off a home loan, but then came the boom.

“In the early 2000s, Sydney went through a massive boom, arguably a stronger boom than now,” Mr Zigomanis said.

The measure hit 40.9 per cent in 2004 after interest rate rises in 2003, but then improved slightly as rates dropped again. Affordability improved markedly during late 2008 and early 2009 with the global financial crisis rate cuts.

Yet the biggest challenge for first-home buyers today is not repayments, but higher asking prices requiring hefty deposits.

“Particularly when the market is moving 20 per cent in a few months,” Real Estate Institute of NSW deputy president John Cunningham said.

Latest Domain Group data shows Sydney’s median house price up 16 per cent in a year, at $914,056.

“There’s still potential price growth in the Sydney market and we shouldn’t be surprised if it keeps rising,” Domain Group senior economist Dr Andrew Wilson said.

Domain Group figures also show that current affordability levels are better than a year ago due to lower interest rates.

*Note: Based on mortgage repayments for 75 per cent of the median house price on a 25-year loan at the prevailing standard variable rate as a percentage of average household disposable income. Median house price refers to June quarter median. The median house price for Australia is a weighted average of the six main capital cities. Source: BIS Shrapnel.

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