House hunting

Jenny and I have been house hunting for quite a while now and still haven't been able to decide. In fact since before the lunar new year (to be politically correct, as one of my 'ol friend said to me before). New launches for the 'standard' 22x75 terrace/link houses are going for 400k and up these days. I'd say these prices are quite ridiculous as this would basically mean an average engineer would have to pay more than half of his salary for the mortgage payments. Don't tell me I have my facts wrong as I've checked the average figures on internet job sites. Why is this ridiculous? Of course it is! As far as I know, the basic loan approval criteria is that the mortgage repayments shouldn't be more than 1/3 of a person's monthly salary. What's the problem with that? you may ask... just get houses which are further away from the city, they're much more affordable. That's true, I won't argue with that. However, with our present state of public transport and highway congestions, how many would want and/or be willing to live so far away from their jobs? Well I do know of people who drive for hours each day just to get to and back from work. Well coming back to my point, I'll prefer getting a house nearer to work even if it means paying more. Sighs.
Add to that, the increasing fear of a looming recession gets my head spinning even more. What happens if I get a pay cut? What happens if either of us lose our jobs? What happens if the value of the house drops right after we buy it? (I guess this last point wouldn't really matter if we're going to live in it, but I'd feel that we've paid a higher price for it than we should have). I suppose in the end, it just depends on whether we like the place and whether we are able to afford it or not. For now, we're praying that we'll be able to make a decision, at the right time.