The RBA has released a new research paper that ( in theory ) provides the calculations’ needs to decide which is the better long term option ( to buy or to rent ).
The theory is that, if house prices rise by less than 2.9% ( a year ), then you are better off ( financially ) by renting. This has been calculated by factoring in the costs of maintaining the asset against the ( relatively lower ) cost of renting. The argument further carries that one should rent – as you can rent in a much nicer suburb ( for what you would pay in your mortgage ).
And just like Communism – makes perfect sense – in theory.
And just like Communism – in practice – doesn’t really stack up.
The reality is that having a mortgage is ( for many ) the best ‘Savings Plan’ that they can employ. Further, in Australia ( unlike many overseas countries ) home ownership is seen as a given ( almost as a ‘right’ ) and the ‘Great Aussie Dream’ of home ownership lives on strong.
If you doubt this, consider the following:
Think back to before you started saving for your first home ( or if you have paid off your home ) and remember how much you saved per week………. Now, you may be the exception to the rule, but of 100 recently surveyed, over 90 had little or no savings !!!!!
For many, unless they HAVE TO save ( and paying your mortgage is a HAVE TO ) most spend what they have. The ‘trap’ in renting, is that you don’t save the left over money, but spend it on ‘things’ and time flies by.
I recall ( 1999 ) having just bought another property, being asked the question “ What are you trying to prove ? – why have you bought in this market – prices are too high…..” “ You should know that it is wiser to rent than buy – you studied economics at Uni.. weren’t you paying attention ? “.
That person decided to rent and wait for the market to turn ( and just like that ‘genius’ American economist who visited our shores following the GFC and pontificated that Australian property was overpriced and about to FALL BY AT LEAST 40% ) – they are both still waiting for it to fall.
That property, bought for $150,000 in 1999, was sold last year for $1,150,000.
How much do you think the renter has saved in the same time? Chances are they are well travelled and have the latest fashion in their wardrobes or possibly a lovely car; but that’s it!
The reality is that ( for many ) a ‘mortgage’ is the BEST FORCED SAVINGS PLAN one can employ – and if you can have someone helping you ( the person paying the rent on your investment property ) all the better.
You decide…