House prices have actually become affordable!
House prices may be skyrocketing as daily news reports show. But, have they actually gotten more affordable ?
According to chart below, house prices have actually reached their most affordable levels and have been on a declining trend for the past two decades.
This data has been compiled by leading mortgage player, HDFC Ltd..
Data source: HDFC Presentation
This affordability ratio, which takes into consideration the annual income of the home buyer along with the price of the house, declined to 4.6 in FY12, from as high as 22 in 1995.
This means that a house cost an amount 22 times his annual income. This has come down to around 5x in 2012. Annual incomes have been rising over the years, and now the tax benefits of purchasing a property have also increased.
As long as this ratio remains in the 4.2-5.5 range loan demand will continue to be robust.