Is it cheaper to buy or rent your next home? You might be surprised

While it might feel like property prices are skyrocketing out of reach, the majority of Australian homes are actually cheaper to buy than rent over the next decade, according to a new report.

The latest REA Insights Buy or Rent 2021 Report reveals it is cheaper to buy than rent around 57% of dwellings across Australia, based on modest housing price growth of 3% per year over the next decade.

Now, the results differ by property type and from state to state, which we’ve broken down further below.

But across the nation, the report found that just over half of houses are cheaper to buy over the next 10 years, while the share of units that are cheaper to buy is almost 75%.

So why is it generally cheaper to buy than rent across the nation?

Well, record-low mortgage interest rates are the main driver of favourable buying conditions.

“Interest rates can currently be fixed below 2% per year and the Reserve Bank of Australia has committed to maintaining low-interest rates until at least 2024,” explains Realestate.com.au economist Paul Ryan.

“This certainty that mortgage costs are not going to increase rapidly provides comfort to buyers borrowing larger amounts.”

Given these low-interest expenses, Mr Ryan says that moderate property price growth (which means having an asset that’s growing in value) will likely offset the additional costs of owning a property, such as stamp duty, maintenance and council or strata rates.

State vs state breakdown

Below is REA Insight’s state-by-state breakdown of the percentage of suburbs where it is cheaper to buy than rent. Houses below have three bedrooms, units have two bedrooms:

NSW: 41.3% (of suburbs) for houses, 69.1% (of suburbs) for units

Victoria: 42.2% for houses, 67.6% for units

Queensland: 85.4% for houses, 98.4% for units

South Australia: 73.6% for houses, 98.4% for units

Western Australia: 69.7% for houses, 98.4% for units

Tasmania: 73.2% for houses, 100% for units

Northern Territory: 97.6% for houses, 100% for units

ACT: 65.7% for houses, 100% for units

So here’s the catch in the analysis

The REA Insights analysis assumes buyers already have access to a 20% deposit, which remains the biggest hurdle for many buyers – especially for first home buyers as prices continue to rise.

“Many would-be buyers can already afford loan repayments, but struggle to save a deposit while renting,” adds Mr Ryan.

“Continued price growth may cause additional concern for many in this position.”

How we can help you start buying, and stop renting

As mentioned just above, saving for a house deposit is the biggest hurdle for many of those dreaming of living in a home they can call their own.

But the good news is that there are several potential options to help you get a foot on the property ladder quicker.

One option is the First Home Loan Deposit Scheme, which allows eligible first home buyers with only a 5% deposit to purchase a property without paying for lenders mortgage insurance (LMI).

It’s due to accept applications for a further 10,000 hopeful homebuyers from July.

There’s also a range of first home buyer grants and stamp duty concessions around the country that you might be eligible to apply for.

For more information, give us a call today – we’d love to discuss with you your finance options to help you make the leap from renter to buyer.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

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Has the housing market’s latest record-breaking run peaked?

Property prices climbed at a breathtaking pace in early 2021, which has been good news for homeowners and heartbreaking for house hunters. However, there are seven key signs that the pace of capital gains has peaked, says CoreLogic.

Now, it’s important to note that CoreLogic is not suggesting that housing values are about to dip.

Far from it.

Rather, CoreLogic believes the housing market is “moving through a peak rate of growth and the pace of capital gains will gradually taper over coming months”.

“Overall, we are expecting housing values to continue to rise throughout 2021 and most likely throughout 2022, just not at the unsustainable pace of growth that has been evident over recent months,” explains CoreLogic’s Head of Research Tim Lawless.

Below are the seven signs they’ve identified.

1. CoreLogic’s home value index indicates a slowdown

CoreLogic’s rolling four-week change in dwelling values shows Sydney’s rate of growth has dropped from 3.5% (in the four weeks leading up to 21 March) to 2.3% (in the four weeks to 21 April).

Meanwhile, Melbourne dropped from 2.5% to 1.5%, Brisbane from 2% to 1.8%, and Perth from 1.5% to 0.9%.

The only mainland state capital to record an increase was Adelaide, up 1.7% from 1.2%.

2. Auction clearance rates have dropped

Historically, there’s been a strong positive correlation between auction clearance rates and the pace of appreciation in housing values, says Mr Lawless.

Recently, however, there has been a slight softening in auction clearance results.

The weighted average clearance rate moved through a recent high of 83.1% in the last week of March, before dropping to 78.6% in the week ending 18 April.

3. Vendor activity has increased

There has been a considerable rise in new listings as vendors look to capitalise on the market’s strong selling conditions.

In the four weeks to 18 April as many as 26,470 capital city properties were added to the market, says CoreLogic.

“That’s the largest number of new listings for this time of the year since 2016 and 17% above the five-year average,” adds Mr Lawless.

4. Housing supply is on the rise

Thanks to HomeBuilder, there has been a significant lift in housing construction activity that will add to overall supply levels in the coming months.

Approvals for new dwelling construction are at record highs, points out CoreLogic, and dwelling commencements over the December quarter were almost 20% higher than a year earlier and 5.5% above the decade average.

5. Population growth has turned negative

Due to current tight border restrictions, it’s much harder to get into Australia than usual.

That’s led to a decline in population growth, which can also have an impact on housing demand (although it’s more likely to have a bigger impact on rental markets, as the majority of migrants rent before buying).

“Population growth, which is an important component of housing demand, has turned negative for the first time since 1916 due to closed borders and stalled overseas migration,” adds Mr Lawless.

6. Fewer government incentives and schemes available

You might have heard that applications for the HomeBuilder grant, which started off at $25,000 before being reduced to $15,000, have now closed.

On top of that, JobKeeper has also finished, and JobSeeker has been dialled back.

“Australia is moving into a new phase of the economic recovery where there is substantially less fiscal support which could result in a reduction of housing market activity,” says Mr Lawless.

7. Higher barriers for homebuyers looking to crack the market

Last but not least: the higher prices rise, the higher the entry barrier for home buyers.

And the higher the entry barrier, the fewer active house hunters there are, which means less demand to drive up prices.

“For those looking to enter the market, growth in housing values is substantially outpacing incomes, which means a growing deposit hurdle for first home buyers,” explains Mr Lawless.

Get in touch today for help overcoming these barriers

As you can see, there’s a case to be made that the rate of property price growth has peaked.

But Mr Lawless warns there are still a variety of factors that are likely to keep upward pressure on housing values for some time, including the record-low official cash rate, which the RBA says won’t lift “until 2024 at the earliest”.

So while prices are expected to continue to increase – and it might feel like you’re running on the spot – please know that potential solutions do exist for keen homebuyers.

For example, the federal government’s First Home Loan Deposit Scheme is due to accept another 10,000 applications in early July, allowing eligible first home buyers with only a 5% deposit to purchase a property without paying for lenders mortgage insurance (LMI).

For more information, give us a call – we’d love to help you out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

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