Affordability in the housing market has never been worse. This is not the message given by standard measures because, by focusing only on initial payments, they ignore the fact that the real value of debt falls more slowly in a low inflation world. A measure of the lifetime cost of a loan is always a good supplementary indicator and, in today’s low inflation environment, arguably a better one. It strongly suggests that risks of a major house price correction are higher than is widely believed.
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