Sure house prices are expensive, but recently in the Australian Financial Review respected economist Chris Joye cited Bank of America Merrill Lynch’s Dr. Alex Joiner who has demonstrated that if you take the median house price in 1985 and adjust it only by disposable household income growth between 1985 and 2015 and the change in borrowing capacity over this period – via lower mortgage rates – you find that the 1985-adjusted value is 1 per cent above current median prices.

Source: Australian Financial Review

So the change in incomes and interest rates since 1985 imply that Aussie housing is fairly valued (actually slightly cheap).

This analysis is crucially predicated on interest rates staying at or below their present marks and if interest rates rise, then housing could be considered expensive; but the bond market currently implies that over the next 10 years the cash rate will only climb by about half a percentage point.