House prices to keep rising for years

[nioka]

I don't think renters are falling behind? Paying rent is far less expensive than paying off a house; this allows people to save up

In my experience I have never see many renters saving money. Usually it's the opposite. Ofter renters would pay just as much as mortgage payments would be for a similar residence. With inflation after one or two years home owners are well ahead. Particularly those that don't insist on a McMansion as their first home. There are very few homeowners that think renting would have been a better proposition. Over the years it is mostly renters who tell me how lucky I am. You start getting lucky when you buy your first home.

 

[pepperoni]

Interest is dead money, especially when its against an asset that is giving below market returns, or losing money.

Consider a median aussie house .... rents are usually less than 5% (often less than 3%) whereas mortgage rates are often more than 9%.

Any equity tied up in the home has a holding/opportunity cost (ie it could be invested at call for 8+%.)

Its not a simple as our parents told us 20 years ago (when median house price was 4x average earnings) and the younger generation have this less simplistic outlook when considering whether or enter into a 30 year debt.

 

[Nyden]

But, Nyden, at the end you own an asset if you're paying off your house. Paying rent you own nothing.

I don't know about that - at the end of paying rent, you would have amassed a large sum of savings; which could be used to pay off 60-80% of the house upfront. I actually know a friend that did this, after 6 years he paid off a house ... no mortgage.

I know other people who are on home-loans which are set to last for 20 years +, will that home that they own really be as valuable as all the interest they've paid? This works well if it's an area that actually has growth, but there are many suburbs that simply don't appreciate in value at that rate (the lower end areas) - it isn't all that great to hold an asset you've paid 2-3 times more than what it's worth.

 

[pepperoni]

I don't know about that - at the end of paying rent, you would have amassed a large sum of savings; which could be used to pay off 60-80% of the house upfront. I actually know a friend that did this, after 6 years he paid off a house ... no mortgage.

I know other people who are on home-loans which are set to last for 20 years +, will that home that they own really be as valuable as all the interest they've paid? This works well if it's an area that actually has growth, but there are many suburbs that simply don't appreciate in value at that rate (the lower end areas) - it isn't all that great to hold an asset you've paid 2-3 times more than what it's worth.

Exactly,

Ive rented for 2 years and saved six figures each year ... anyone that cant save without debt would most likely end as one of the current wave of defaulters?????????


Anyway here are some actual facts on residential:

http://www.news.com.au/business/story/0,23636,23873158-31037,00.html

Here are some facts on commercial:

http://business.smh.com.au/prime-city-sites-for-sale-but-no-one-is-buying-20080615-2qx7.html

 

[Nyden]

Ofter renters would pay just as much as mortgage payments would be for a similar residence.

I've never seen that actually? The payments themselves may be the same, but the home-owners also pay tax on the property, they pay insurance, rates, & many other costs associated with the house.

It's much easier to rent a dump than to buy a dump - I could care less if the home I lived in wasn't exactly pretty if I didn't own it; but when buying I would probably feel compelled to purchase something a little more upscale - a saving right there.

That is the key though; when buying a house (something you're most likely stuck with for 20 years) one is more likely to want something a little better than something they would rent - and there's nothing wrong with that.

I know a few people (once again, lower end) renting a house for 200 a week - that's absolutely minimal, & quite easy to save up a lot of money. Another couple are paying off a mortgage .... very similar house, just a lot of new things (that all new home buyers seem to get); such as the marble kitchen tops, the new sofa, big screen TV ... This couple is paying off the mortgage at $500-600 a week - & at current interest rates, this only just covers the blooming interest! Talk about dead money.

^ & it's the people like that, of which probably make up for a lot of home owners. Defaults, here we come

 

[nioka]

Last time I posted a lot on this thread I provoked enough emotion to have the thread closed. I'll just accept the fact that, while my experience of many years proves to me that I am right, I will never convince some of the definite advantages of home ownership. I rest my case before there is a repeat suspension.

 

[Nyden]

Last time I posted a lot on this thread I provoked enough emotion to have the thread closed. I'll just accept the fact that, while my experience of many years proves to me that I am right, I will never convince some of the definite advantages of home ownership. I rest my case before there is a repeat suspension.

Hmm, perhaps I haven't explained correctly ...

I completely understand, & agree with you on the advantages of home-ownership; I think we merely disagree on methods of getting there? I'm only stating that it's perhaps better to rent a property much cheaper than the house you wish to buy; so that you may save a lot of money, & buy it near-outright. ... I think pepperoni is on the same page as well.

I'm also stating that this is probably the best option for the time-being as well, given my opinion that house-prices are due for a crash here in Australia, & to be holding an asset which could be cut drastically in value is never desirable.

 

[Pommiegranite]

I don't know about that - at the end of paying rent, you would have amassed a large sum of savings; which could be used to pay off 60-80% of the house upfront. I actually know a friend that did this, after 6 years he paid off a house ... no mortgage.

Why did he do that if renting and saving was more profitable?

 

[Nyden]

Why did he do that if renting and saving was more profitable?

Well, it's not just about profit. Many people do enjoy the freedom & security of home ownership; this was his goal - to save, & to buy. Probably cheaper living in a home you own (no mortgage payments) than to rent as well :

 

[Pommiegranite]

Well, it's not just about profit. Many people do enjoy the freedom & security of home ownership; this was his goal - to save, & to buy. Probably cheaper living in a home you own (no mortgage payments) than to rent as well :

I have to say that your posts on this subject seem to be very contradictory.

 

[Nyden]

I have to say that your posts on this subject seem to be very contradictory.

I don't think so?

Living in a house you have paid off is indeed cheaper than renting - as you no longer have to pay to live there (aside from obvious costs) ... ? Unless you factor in loss of earnings from renting the place out to other people.

But living in a house that you have not paid off (yet "own") is more expensive than renting; as you are not only paying off the loan, but you are also paying off interest, & costs.

Obviously if the house is paid off, you're no longer paying interest, nor loan repayments, I guess I didn't make myself clear enough.

 

[Pommiegranite]

I don't think so?

Living in a house you have paid off is indeed cheaper than renting - as you no longer have to pay to live there (aside from obvious costs) ... ? Unless you factor in loss of earnings from renting the place out to other people.

But living in a house that you have not paid off (yet "own") is more expensive than renting; as you are not only paying off the loan, but you are also paying off interest, & costs.

Obviously if the house is paid off, you're no longer paying interest, nor loan repayments, I guess I didn't make myself clear enough.

No, I'm talking about selling the property if it is paid off and putting the money in the bank and earning interest (which is akin to saving by not owning)+rent cheaper property+save other income, which is what you said is a good idea in a previous post.

 

[Nyden]

No, I'm talking about selling the property if it is paid off and putting the money in the bank and earning interest (which is akin to saving by not owning)+rent cheaper property+save other income, which is what you said is a good idea in a previous post.

Hmm, once again - either I've not come off very clear, or I've been completely misinterpreted. My whole argument of it being better to rent a cheaper property, & save other income is for the goal of buying a house outright (or at least a very high % deposit) -without 10 years of mortgage payments, & owning it.

 

[gfresh]

Ok, to get some better figures on this (for owners, not investors of course).. and going on the "18% capital appreciation in sydney in 3 years" - I've attempted a spreadsheet.

Not taking into account other miscellaneous buying costs + rates + any maintenance - which may add $20k+ onto this equation.

Purchase would be a $400k home. It would be assumed the buyer *had* a 10%, $40k deposit ready, leaving a $360k mortgage. Over 25 years repayments should be $719/wk (using mortgage calculator, may not add in extra loan fees)

--
Mortgagee

Interest Rate: 9.40%
Loan: $360,000
Interest /year: $33,840
Interest /wk: $650.77
Interest x 3 years: $101,520
Capital Appreciation: 18.00%
Capital Appreciation (3yrs): $64,800
Mortage (wk) - 25 yrs: $719.00
Capital Paid Off (wk): $68.23 (above - interest paid/wk)
Capital Paid Off (3yrs): $10,644

Net Mortgage Cost: -$26,076

(capital appreciation + capital paid off - interest)

Renter

Rent Equiv (wk): $400 (to rent approx $400k home)
Rent/year: $20,800
Rent x 3 years: $62,400

For renter, instead $40k deposit goes into term deposit.

Deposit: $40,000
Savings Account: 8.00%
Interest /yr: $3,200
Tax @ 30%: $960.00
Net Term Deposit Savings x 3yrs: $6,720

Extra Savings(wk) = (mortgage-rent): $319
Extra Savings x 3yrs: $49,764

Net Rental Cost: $5,916

Above is: income from term deposit + savings - rent

Difference to renter over 3 years: +$31,992

Above is Mortgage owner - renter. The renter is saving, it's costing the mortgagee here.

True, it's simplistic, in that compound interest is not calculated. Under the current environment, with high rates, doesn't look too attractive to buy until the equation tips the other way.

I know long term there are quite a few reasons why the mortgagee will be better off (longer term avg appreciation may be higher, not subject to rental inflation), but this is considering the current environment, where savings accounts pay high interest, and interest rates for property owners is high.

It's true, maybe renters will not save the money, but it's quite easy to have an automatic savings plan which will be the same as what a bank does anyhow. If they can't save each week in this fashion, maybe they shouldn't be buying at all.

 

[Mofra]

I don't think renters are falling behind? Paying rent is far less expensive than paying off a house;

Initially, yes. However, inflation eats debt in real terms over time, whilst rents at a minimum tend to track CPI.

The only times renters are ahead of mortgage holders are:

a. If they use the spare income/cashflow to save/invest (which I very much doubt the majority do, from my personal experience in financial services the hardest savers were those looking to purchase property in the short term anyway)

b. If they leverage the spare lending capacity to gear into income producing assets, not limited to residential property (in my experience this group, albeit small, tends to do far better than homeowners over time). This is the category I fit into, at least I'm putting my financial plan where my mouth is

 

[Mofra]

They were quoting "12% increases" in sydney, with the small print stating they are not annual but 3 year returns

So this thread title is correct!

 

[gfresh]

Note: there was an error in my calcs above.. For the capital appreciation, it should of course be based on the $400k figure, not $360k. So that gives $72k for property appreciation, and renter advantage is $24,792.

 

[Macquack]

http://business.theage.com.au/econom...0617-2rxc.html

Quote:
In the minutes, the RBA said the board recognised the Australian economy was now slowing after 12 interest rate rises in the past 6 years.

The central bank has forecast employment growth could begin to slow as a side-effect of the drop in business spending, confidence, credit growth and the broader economic contraction.


RBA Board Meeting conversation

Deputy Governor of the RBA Ric Battellino:
Stevo, just drafted the lastest minutes of the RBA for distribution to the peasants.......
"The central bank has forecast employment growth could begin to slow as a side-effect of the drop in business spending, confidence, creating money out of thin air and the broader economic contraction."

Govenor of the RBA Glenn Stevens:
Rico, you had better change "creating money out of thin air" to read "credit growth".

Deputy Governor Ric:
BUT IT IS creating money out of thin air.

Govenor Steven:
YES, but we cant let the punters know that, or we will all be out of a job.

 

[saiter]

Are the housing prices in Sydney going to settle or slow down?
If more businesses are going to move their headquarters out of Sydney CBD and into the West (e.g. Commonwealth Bank to Homebush), I'm guessing this will result in a drop in prices for houses immediately surrounding the CBD and an increase in those in the West. How long would this take though? 10, 15, 20 years?

 

[theasxgorilla]

But, Nyden, at the end you own an asset if you're paying off your house. Paying rent you own nothing.

I like the idea of renting a property versus renting the money that you can then use to control a property. I think it behoves one to realise that when you rent your are protected but your ability to control the property is well limited.