It’s cheaper to buy than rent

The charts I've seen were clearly showing a long term increase above inflation.

Ofcourse any rise or fall in times of boom or gloom with magnify gains or any temporary losses. I say temporary because we have yet to see prices going backwards and staying low when wages and rents go up over time.

One day those properties will be cheap to buy or we will have the situation we have today where rents in some areas are higher than loan repayments.

At the end of the day though, it's up to an individual to decide if they want to wait till prices come down but from what history tells us, those people waiting could be waiting forever.

My belief is that considering the following factors
if we can afford to buy an asset today
if can afford the repayments even with 8% interest rates
if we are buying in an area where the population is increasing
if we are buying in a market which has been stagnant of fallen since it's peak
if it's currently yielding over 5%
If we are getting first home buyer's assistance and the loan repayment including our deposit is similar to paying rent

then we should buy because
1. the government's assistance won't be there forever
2. if market conditions change or our own circumstances change we might not have that same opportunity again in the future.
3. for many of us it's a way of enforced savings because otherwise we will spend our deposit of things we don't really need, eg a nice car which is a highly depreciable item or a holiday we can do without for a while.

my 2c

 

Yes in your case I believe it's a fair call but consider this.

The government has not promised anything but looking at the state of our economy the FHBG could be extended because right now there is reduction of employment in other industries so housing is an industry which could take over for a while and provide much needed boost to our economy and stop us all from being unemployed.

Therefore if the FHBG is extended we could have continued demand by first home buyers and we will also have low interest rates for at least 1-2 years so this could be an ideal opportunity for people like yourself who want to do small developments to start building.

You'll have lower interest repayments during construction and you'll have plenty of buyers when you finish building.
What more do you need?

 

It's cheaper to buy than rent in 74 suburbs, but there are more than 74 suburbs in Australia; does that mean it is cheaper to rent than buy anywhere else?

 

Possibly, but it depends on what you want to rent and the location.

To buy or not to buy?
For many people it will be a difficult one to answer.

For me it's always been a straight forward decision.
I bought when I could afford it and never looked back.

I always liked the idea of having my own home.
I wanted to have the freedom to make my place the way I like it and I don't want to have to move out when the landlord decides to sell his property.

 

I would add a couple of things. First of all, the FHB grant boost not being around forever is not necessarily a reason to rush in. This acts to stimulate demand temporarily and pull demand forward. It can raise prices for the duration it is in effect much more than the benefit of the grant. Of course if prices fall a few percent the grant is also wiped out. Many in the RE industry have recently voiced concerns there will be a crash if the govt. doesn’t extend it (which I think is a fair bet that they will extend it but will pretend they haven’t decided until the last minute to create a sense of urgency.)

Regarding the short term gains or losses, yes of course, like the stock market, they can be temporary but then the comparison of buying being supposedly cheaper than renting is based on short term figures which ignore costs and use historically low interest rates that are clearly not sustainable in the long term. If people lose their jobs, as many more are predicted to do, then it becomes a short term proposition and losses are almost certain.

You said “it's up to an individual to decide if they want to wait till prices come down but from what history tells us, those people waiting could be waiting forever.”
Not sure how much you know about the history of house prices but what in the majority of cases I have seen prices are more likely to hit the trough 3-5 years from the peak of the market, though of course prices have never been this high nation wide in relation to income. If a period of deleveraging and increased unemployment is ahead this trend is likely to reverse. We are just coming off a massive boom into a massive bust so it seems early to call the bottom in an asset class that is traditionally slow to react in comparison to the stock market.

Lastly, given that interest rates were moving towards 10% last year and governments are now printing money and slashing interest rates, with the associated risks for inflation, 8% may be too low a figure to calculate maximum payments on for what is, as we agree, a long term proposition. If inflation does result as many expect then interest rates could rise very quickly. Of course, some of that risk could be reduced if more people took out fixed rate loans for longer periods of time, though obviously this entails an additional premium on the current variable rate. Much more people were fixing at 9.6% though than at current low levels.

Forced savings aspect and this can be helpful for people who have problems with this. Of course, some might argue that a mortgage is also forced spending in that payments and costs must continually be made and if the property is bought at an inflated price and subsequently falls then this goes out the window.

If however, someone is certain their employment will be secure for the next 5-7 years at least, they feel that the property they are buying is fair value and comparable to one they would rent at the same price, they have factored in interest rates of at least 9% and they are happy to stay in this particular place for that period of time then it might be the right choice for them.

 

bubblebobble

Food for thought there, thanks

Me too, I've also seen it in Sydney recently and I would not entertain the idea of buying if the market has not been stagnant or corrected for a few years.

However, our need to live somewhere still exists and IMO the FHOG and the low interest rates will stop prices from falling at the low end so if we can afford it and are buying the basic bread and butter type property I don't see why we should hold back.

cheers

 

This is a VERY important point.

In the US they are starting to talk about how they have found a bottom in mortgage rates because it appears that long term US bonds' yields are starting to rise again (I'm personally just hoping it's because of the rally in stock prices).

The problem is that US Treasury prices are in a MASSIVE bubble of their own as people have looked to move back into USD, apparently for safety... but the FED has been forced to and will continue to buy up a lot of treasuries given that Japan and China have both significantly reduced their purchasing of US treasuries, which ultimately means that the FED is printing money to buy the debt that the government was trying to sell. This is a recipe for hyperinflation in anyone's books, and yields on US Treasuries will skyrocket as a result and it is looking more and more like it may strike the US sooner than feared.

Anyway my point is that at this stage it is looking like at some point down the road interest rates are going to get back above 10% (I expect this will happen quicker than at the speed at which they came down) and whilst the RBA still have 3% it can cut from the cash rate that won't offset the coming inflation explosion.

Whilst I'm not suggesting everyone should be fixing their mortgage rates now, I'm personally keeping a very close eye on the international money and bond markets.