A typical home is worth a little over four times the average household's annual after-tax income, down from almost six times five years ago, Reserve Bank figures show.

Strong growth in incomes and a period of more sluggish median house price growth are working in the interests of would-be home buyers. "This is a dramatically better picture on Australia's housing affordability," the chief economist at UBS, Scott Haslem, said.

But housing still remains expensive by historic standards. In the 1980s, it took just three times the average annual disposable income to afford a median priced home.

Australia remains one of the least affordable countries in the world. In Canada the multiple is less than four. In the United States it has remained at about three times annual disposable income for the past two decades and precipitous house price falls in some areas of the US has reduced this even further.

The governor of the Reserve Bank, Glenn Stevens, said yesterday that the gradual improvement in affordability suggested Australian house prices were not heading for the same large price falls witnessed in other countries.

"In Australia's case, the ratio of the median dwelling price to average household income has declined quite noticeably since 2003, without a very large absolute decline in housing prices.

"This is evidence for at least the possibility that these adjustments can take place over reasonably lengthy periods and without being terribly disruptive to the economy."

Also working in favour of prospective home buyers has been the drop in mortgage interest rates to their lowest since the 1960s. Mr Stevens said this had already delivered a significant boost to household spending power. "I don't have much doubt that certainly for the household sector, this is an expansionary setting of policy."

While economists have begun to speculate that this could be the low point for rates, Mr Stevens held open the possibility of further small interest rate cuts if needed to boost consumer confidence.

"That is obviously a factor to keep in mind in the month-to-month tactical decisions."