In ordinary circumstances, you might be happy with a margin of...

In ordinary circumstances, you might be happy with a margin of safety of 25 percent (assuming that is what you have).

However, what we are living through is about as far from ordinary as you can imagine however, as we come to the end of one of the biggest housing bubbles the world has ever seen IMO.

My opinion is based on the fact that it would cost me about $800k to buy the house I grew up in, despite the fact that my parents paid $50k for it, and despite the fact that the house was six years old when my parents bought it, but is now forty plus years old (looking tired). If we measure like for like, we are talking about me paying 5-6 times my joint household income, versus about 1.8-2 times my parents joint household income at the time. That rate of increase cannot be sustained unless having multiple partners sharing the same roof becomes a new social norm in the 21st century. People simply cannot afford it.

Unless you are in the younger generation I know this point seems difficult to grasp, but think about it this way: imagine paying 50+ percent of your income to put a roof over your head. That is what vendors are asking young families to pay in most metro areas in Australia. This is why I hold the opinion that recent levels of Australian house prices are grotesque bubble territory.

By the way, I don't want to hear any anecdotal rubbish about how it was tough back in the day or Keating had 20 percent interest rates (capped for housing mortgages at 13 percent mind you!). Come on bulls, show the data that says 50% of income going to service the mortgage is normal and has occurred before in Australia (or indeed in any other comparable country).