Property is reportedly cheaper than it was 10 years ago. It may sound unbelievable because of the recent boom in prices but property is actually more affordable now.
When we talk about affordability, there are many other things to consider, aside from the prices. People often buy properties with finance, not with cash and this means we have to consider finance costs when assessing affordability.
Finance costs are dropping fast and record-low mortgage rates have made it easier for Australians to meet the costs than it has been in many years.
According to the Australian Bureau of Statistics, in 2005-06, it took an average household 19% of its gross income to meet housing costs and by 2015-16, it fell to 16%, which is the lowest in over 20 years. The average household currently spends less of its income on housing than on food. Housing costs include mortgage, water and rate payments.
We also have to consider the increase in income. Because of inflation, the average mortgaged household paid $434 per week in 2015-16 and 2005-06 but the average income of mortgaged households increased from $2,272 to $2,759 per week.
The mortgage costs may even be lower than the survey results as it measures what people chose to pay in mortgage costs and not what they had to pay. To pay off a mortgage in Perth, it takes monthly payments of 16%. That’s another reason why a bubble may be unlikely and people pay what they can afford as the prices show.
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