''What would you prefer? House prices three times' average incomes with 13 per cent interest rates or house prices four or five times' average incomes with interest rates under 7 per cent?Economics used to be a science, not opinion field, so lets see how good scientist one of the Australian most famous economists really is.
''The bottom line is the repayments are roughly the same.''
According to RBA 1982 was the last year when Standard Variable interest rate was 13% and ratio between an average house price and average income was 3. An average repayment after purchase was 33% of the income (25 year loan, 80% LVR, deposit equal to 60% of annual income).
Today, ratio between an average house price and average income is around 7 (according to RBA). Standard variable interest rate is 5.95%, repayment 45% of income (30 years loan, 90% LVR, deposit 70% of annual income).
First year repayment today is 36% higher than what it was when home prices were 3 times income and IR 13%.
(assuming IR and income growth stay the same).
In year 4, repayment dropped to 23% (assuming IR and income growth stay the same).
In year 5, repayment dropped to 21% (assuming IR and income growth stay the same).
Total cost of house ownership (including deposit) in first 5 years was 190% of income for 1982 buyer and 280% for today's buyer. Despite significantly lower rates, higher LVR and longer loan term, houses today are 47% more expensive in first 5 years than they were in 1982.
Over the life time of a mortgage (25 vs 30 years), today's potential buyer (with assumption that rates stay low) would pay more than twice in income terms for an average house than buyer from 1982.
Don't worry and buy because "anxiety about overpriced housing is overblown"?!