Ripple effect - how to calculate the affordable price ?

[evisional]

People are talking about Ripple effect to predict the next growing suburbs. People will buy their houses in a next affordable suburbs. However, what is the affordable price?I wonder if there is any methods to determine the affordable house price ?

For me, I think about the average income for a household or average person.

For example, average income is $60,000/year for a family. this income in which is used to pay for mortgage is i.e. $25,000

Interest rate: 6.5%

--> Mortgage = 25,000/6.5% = $384,000
--> Affordable house price = $384,000 / 80% = $480,000

So, any suburbs whose property prices exceed $480,000 are not affordable.

Is this method ok?

 

[barney8]

No, its about relative value of neighbouring suburbs.

Tends to be from CBDs outwards.

you can use google to find a pretty good write up.

http://finance.ninemsn.com.au/pfproperty/investing/8122784/residential-property-ripple-effect

A house isn't cheap if its miles from nowhere.(places of work ie CBD, transport, leisure etc)

It "ripples" back in as the article says when these outer suburbs end up as expensive as the ones closer to the action.

I watch it more carefully on rents rather than prices as I think its a leading indicator.

 

[Indifference]

................

It "ripples" back in as the article says when these outer suburbs end up as expensive as the ones closer to the action.

.............

This is an often "overlooked" phenomena and a great point!!!

When the high end properties boom, the ripple flows out as the relative value of nearby properties make them "cheap". but, when the high end properties devalue, the converse happens.... nearby properties become relatively more expensive and will be next to drop off....

So, with many city markets experiencing this exact phenomena today, you can infer what is likely to happen in the near future to the more "affordable" properties.... It is all relative and cyclical.