There are four words that describe what is motivating some people to bid up house prices so frantically in Sydney and Melbourne: fear of missing out. The argument goes something like this: if this is where prices are today, how high might they be in a few years?
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Given the huge value many of us place on home ownership, this fear is a powerful force. It can convince people to take bigger risks than they would otherwise, or do things they may regret later.
So, it can help to balance these emotions with a hard-headed look at what the numbers show.
And recently, experts who do this for a living have been sounding warning bells to suggest that housing is getting very expensive when judged by many key measures of valuation.
That doesn't mean there is going to be a crash, but it is a clear warning for potential buyers to take care in what can become a very emotional decision.
For an illustration of how expensive housing has become, take this week's graphic. It shows the ratio of median house prices to average incomes has reached a record high.
That may sound like something that is only interesting to number-crunchers, but it is a widely used gauge of overvaluation.
According to this analysis, from credit rating agency Moody's, the national median house is more than a record 12 times the average disposable income of about $45,000 a year.
Or try this scenario. Imagine you are on the average wage and you're willing to put aside 30 per cent of your disposable income to save up a deposit for a home, and you also want to limit your eventual mortgage payments to 30 per cent of your pay.
They calculate it would take nearly 14 years to save a large enough deposit for a median-sized house, and keep your repayments in that range. That is also a record high.
These are just economists' scenarios, and they clearly don't reflect everyone's circumstances. But they make a powerful point: the growth probably can't continue at this rate indefinitely because buyers simply won't be able to afford it.
The Moody's analysts argue the market will eventually face a "correction" – a 10 per cent fall in prices from a previous peak. But they also add the rather large caveat that low interest rates might keep pushing up prices in the shorter term.
Predictions like this should not be taken as gospel – there's no guarantee they'll come true.
But they are a worthwhile note of caution that buyers afraid of missing out should keep in mind.
