It’s a very subjective word, isn’t it?

What someone thinks is cheap for a property might be thought by another as very overpriced. Often, it’s hard to tell who’s right until years have gone by. Of course, the old adage that property is always expensive when you buy it but cheap when you sell usually applies; however recently there’s been a lot of media attention around the ‘affordability’ of the Australian market.

Every year, The Economist (and several economists that keep ‘revising’ their forecasts) comes out and states that Australian property is grossly overpriced. Every year, they have been proven wrong in a timely manner. Since mid 2012 (depending on which data source you use) Australian house prices have been increasing, in some areas very healthily. Nationwide the RBA states the increase has been about 4% during this period.

With auction clearance rates up in most capitals, clearly many don’t think prices are that unaffordable.

In fact, UBS data shows that mortgage repayments as a share of disposable income are at their lowest level in ten years. Anyone thinking back to the market in 2001 would surely have heard the same lines about the housing market and its unaffordability. That year dwelling prices surged 19 per cent, then 16.7 per cent in 2002 and 17.6 per cent in 2003.

The difference is that in 2001 Australia’s household debt-to-disposable income ratio was 95 per cent. By 2006 it had hit 150 per cent, which is about where it is today. However, interest rates are now close to their historical nadir, and something else has been happening over the past few years:

We’ve been saving.

According to assistant RBA governor Philip Lowe, since the mid-2000s the household sector net savings ratio has risen from almost zero to around 10%. This represents an additional $90 billion that is saved, not spent, by households each year.

Along with the flexible exchange rate, this has helped maintain domestic balance during the once-in-a-century investment boom. Had it not been occurring – had we been spending an extra $90 billion per year – there may have been all the signs of an overheated market: a higher exchange rate, more borrowing (from the rest of the world) and higher inflation and interest rates.

So, right now we have impressive affordability levels and a savings pool. Consumer sentiment is also up, with many feeling better about Australia’s medium term prospects.

The message is clear any way you look at it: now is a good time to buy.

With rentals strong in many areas, properties are costing very little to hold as an investment. For any that feel the market is still too unaffordable, and based on the numbers (and history), waiting longer will not make things better.

The key to success is research. We all know the difference only 1 per cent can make, which is the difference between a researched property and an average one. This is the Blue Wealth difference.

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