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Believe it Or Not: Property is Cheaper Today

inflation-adjusted growthAn average household had to part with half of its monthly income in the year 1989 (that is, 25 years ago) to pay up a standard mortgage repayment. Today, they can make do with one-third of their average monthly household income. So, unlike what many assume, property is cheaper today than it was a decade ago. Michael Yardney talks about the issue in an article on Property Update.

Comparing with 1989 and 2004

In fact, buyers are paying less than what they were paying in 2004 when Sydney witnessed its pre-global meltdown boom. In 2004, roughly 40% of the average monthly income of households got sucked by mortgage repayments. The climate of low interest rates has made mortgage repayments a far more affordable proposition today.

You can read the original article here.

Nominal versus inflation-adjusted growth figure

I am encouraged to test the general opinion that property houses are nearing their peak and can’t afford a further rise. I think that nominal price growth has been massive and this gives the impression of unaffordability. However, the real, inflation-adjusted price growth has been very little. Put another way, if there has been a rise in prices, there has been an equivalent rise in household income, too.