Gap between Renting & Buying closing

S

sash

I have said previously that the gap between renting and buying is now rapidly closing. With another 1% rate drop ...more people will make the switch to buying. See the article below..

http://www.smh.com.au/articles/2009/02/07/1233423560064.html

On properties less than 300k....the train is alredy moving. This may also be he first signs that the economy maybe bottoming??

I have a funny feeling that the govt. will continue the FHOG past June.
 
sash said:
This may also be he first signs that the economy maybe bottoming??
Click to expand...

Local agents in my area are reporting sudden increased interest which is encouraging.

THE gap is narrowing between renting and buying in Sydney, prompting first-home owners to take the plunge into the property market. If buyers take out an interest-only loan, it can be cheaper to buy than to rent.

A combination of slashed interest rates, increasing rents, falling house prices and generous first-home buyer grants means that for the first time in many years, buying has become an economical option.
Click to expand...

With reports like this entering the media the herd may well awaken from slumber.
We have had around 5% fall in property values in my town but they have definitely stablised over the last month or two. I just had some surprisingly high appraisals from trusted agents for my duplexes that are nearly complete.

Bill Zheng seems to think that we will have a rebound in some areas this year.

Many property investors will be fooled into believing that everything will be the same as the last 10 years once the stimulus packages become effective, especially throughout 2009 when there will be signs of recovery in terms of property sales in different pockets across the country. I urge you not to lose sight of the big picture, this is the beginning of a new Era, and within this new Era, there will be many ups and downs, but the general direction of prices are more sideways than up.
Click to expand...

Enjoy the property rollercoaster. :)
 
sash said:
I have said previously that the gap between renting and buying is now rapidly closing. With another 1% rate drop ...more people will make the switch to buying.
Click to expand...

I am sure many will enter the property market because of all the incentives.

I know 2 of my tenants are considering the option :eek: but are scared of high unemployment. :D

I have to personally thank KRudd and WSwann for spreading the :sky is falling" idea. Even the opposition couldn't have done a better job in talking down the economy. :D

The whole thing is a joke but lucky the RBA is listening to what the government is saying and dropping our interest rates....;)
 
Firstly, its only temporary. Normality will return when the government & RBA stops artificially creating affordability for people that cant afford to buy.

Secondly, most renters don't have a deposit. Even with the assistance. So buying is not an option. That's why their renting i guess.

I read that article in the paper this morning and thought they forget to factor in the minor point of all the ownership costs that renters don't have to pay.

Interest rates have to be about 2% below rental yields for it to be cheaper to buy than to rent.
 
evand said:
Normality will return when the government & RBA stops artificially creating affordability for people that cant afford to buy.
Click to expand...

Well said, evand.

And here was I thinking I was the only one who ... :rolleyes:

And isn't this the very thing that triggered this whole financial meltdown in the USA - government intervention to make home ownership available to all, regardless of whether they could afford it or not???

Cheers
LynnH
 
evand said:
I read that article in the paper this morning and thought they forget to factor in the minor point of all the ownership costs that renters don't have to pay..
Click to expand...
These costs are not obvious to a lot of people and the honeymoon rate some banks are offering coupled with the zero deposit finance makes home ownership seem very affordable
 
Figures compiled by The Sun-Herald show that repayments for a median-priced property of $536,000 in Sydney - taking into account the most recent rate cuts - are $592 a week. A similar-priced property can rent for between $450 and $550 a week.

If the buyer takes out an interest-only loan, the repayments fall to $461 a week - about the same as, or cheaper than, renting.
Click to expand...

That's an interest rate of under 4.5%. Either that or the journo has neglected to mention a large deposit and associated opportunity loss. Something doesn't add up.
 
Would anyone else like to comment on the implications of this statement?

ziggy2214 said:
These costs are not obvious to a lot of people and the honeymoon rate some banks are offering coupled with the zero deposit finance makes home ownership seem very affordable
Click to expand...
 
Well....the journalist picked a poor subject.

I have a tenant in my Campsie NSW 2 brm unit ...thye have been renting since 2001! The rental value of the unit is 320pw and the value is about 260-280k.

If they borrowed 250k and fixed at say 5.5% for 5 years....they would pay about 15 in interest ...then add 2500 for stata, water & council. That gives a cost of 17.5 pa. The rent paid is 16,620 so the gap is neglible at $900...with the potential of capital gain.

As I said the lower end of the property market is where the action will be!

troyhunt said:
That's an interest rate of under 4.5%. Either that or the journo has neglected to mention a large deposit and associated opportunity loss. Something doesn't add up.
Click to expand...
 
I understand what Ziggy was talking about. What i menat is what will be the outcome or the result of his statement for these buyers or the market in general.

"These costs are not obvious to a lot of people and the honeymoon rate some banks are offering coupled with the zero deposit finance makes home ownership seem very affordable"

troyhunt said:
I assume Ziggy's talking about costs such as rates, water, repairs, possibly strata and then acquisition and disposal costs. Seems a fair comment.
Click to expand...
 
evand said:
I understand what Ziggy was talking about. What i menat is what will be the outcome or the result of his statement for these buyers or the market in general.
Click to expand...

Ah, possibly the same outcome we might see as a result of a large sector of society suddenly having up to $24k they never had before and buying potentially inflated properties that take advantage of this state of new prosperity. It will be very interesting to see the resale values of some of these in a couple of years time when rates are on the way back up and there may no longer be any FHOG.
 
troyhunt said:
Ah, possibly the same outcome we might see as a result of a large sector of society suddenly having up to $24k they never had before and buying potentially inflated properties that take advantage of this state of new prosperity. It will be very interesting to see the resale values of some of these in a couple of years time when rates are on the way back up and there may no longer be any FHOG.
Click to expand...

It smells like subprime doesn't it?

The difference here (unlike the US) is that you still need to show that you have the ability to service the loan.

Also, many of these kids will probably rent these properties out so they shouldn't have serviceability issues.

Even the ones who decide to keep their 1st property as a PPOR
in the worst case scenario they can turn it into an IP and move back with mum n dad
 
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