Are properties really more affordable?

In his weekly economic update Craig James,  CommSec’s chief economist has some interesting things to say about housing affordability and it’s generally good news for those interested in property investment.

James said:  There has been plenty of discussion of the “cost of living” in recent times to justify subdued levels of consumer confidence and general mood of conservatism.

Much of the focus has been on the rising cost of utilities – electricity, gas and water rates. But council rates, health costs, education, petrol prices and housing rents are also frequently cited when discussing the rising cost of living.

When most people talk about the cost of living, they point to the increasing size of the bills they receive or the prices they pay at retail outlets. When economists discuss the cost of living, generally the focus is on the Consumer Price Index.

But these concepts really explain nothing in isolation. A far better concept is purchasing power, where living costs are compared with wages. And it may surprise you that the lot of Australians is still improving in many ways.

For instance, home affordability is now at the best levels in almost a decade (since June quarter 2003). And mortgage affordability is the best in nine years – for someone on the average wage it now takes 1.49 weeks to pay the monthly mortgage – the best since December 2003.

Petrol is 12 per cent more affordable than five years ago and little changed over the past decade. But in Sydney this week petrol was at $1.20 a litre with discount vouchers – the most affordable in 25 years of records. Car affordability is also the best since 1976. As the old adage goes: don’t worry, be happy.