Property

Save your money and buy a house, it's cheaper than renting

IT IS now much cheaper to own a property rather than rent a property.

A year ago it was financially a lineball decision whether owning or renting was cheaper.

This year, it is quite different.

At a recent conference in Brisbane, Peter Tulip a Reserve Bank senior research manager and Ryan Fox a researcher presented a paper which showed that the costs of owning your own home has fallen substantially in the last year.

Dr Tulip made it clear that the paper came from him and his co-author and not the bank.

The reason for this change is that long term bond rates have fallen over the last year. This means that the market now expects the current low mortgage rates to persist for 10 years or more.

The market can be wrong, but have you noticed that five year fixed rates are now available for about the same price as three year fixed rates? This is new.

The seven and 10 year fixed rates are still more expensive but that may also change at some stage.

So, despite rising property prices in the capital cities, especially Sydney, property has become cheaper to own. It sounds crazy but the cost of money (the mortgage interest rate) is a big part of the cost of housing.

The conference paper summarised the difference in a single number: Renting a house currently costs 3.9% a year, owning a house costs 2.7% a year.

This number is calculated from the purchase price, stamp duty and other transaction costs, the expected mortgage interest rate and how much it costs to run and renovate the property minus the expected capital gain.

I have never like the adage "rent money is dead money" because in many cases it makes a lot of sense to rent rather than to buy but I would agree that "rent money right now is expensive money".

*CHRISTOPH SCHNELLE (cs@inyourinterest.com.au) is the principal of In Your Interest Financial Planning Pty Ltd and Auth Rep 308223 of FYG Planners Pty Ltd AFSL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances.

 

 

Topics:  housing real estate



Is this the obituary of coal?

What's the future for coal mining?

There has been a 48 per cent drop in pre-construction activity

Too many B-doubles hauling coal on highway

Clermont residents are concerned the number of trucks leaving Blair Athol is increasing from five to at least eight an hour.

Concerns dangerous highway can't handle extra coal trucks

Footballer to girlfriend: "I'm going to bury you alive"

Jacquelyn Donovan received a number of death threats from former Capras player Russell Webber during an hour long terrifying ordeal that began after Webber picked her up from a Western St address until the moment she jumped out of the moving car on Woodbury Rd.

Former Capra jailed after threatening and assaulting girlfriend

Local Partners

Industry leaders split on Bay's 20-storey complex

GOING UP: The Fraser Coast Council has granted preliminary approval for two 20-storey towers in Urangan.

The complex has been met with mixed reception.

Home ownership plans plummet

Aussies are increasingly choosing not to become homeowners according to a recent survey.

“Many Aussies are disenchanted with the homeownership'

The booming residential development sold on lies

Cape Coral may look like a dream — but it’s very much a case of buyer beware. Picture: Zillow Source: Supplied

The rapidly-growing city was sold on lies

Is this Australia’s most expensive house?

38B The Crescent, Vaucluse is shooting for Australia’s record price.

Phoenix Acres has six bedrooms, six bathrooms, a pool and tennis court