Housing Finance Commitments Up Strongly

[Ausprop]

Assuming that the cost of renting and buying should be broadly similar, then that suggests there's been a discrepancy between the two for the last eight years (in that house's location).

why would you assume that? the risk plus wear and tear of renting should see renting costs significantly higher than owning. it is normal for rent to be higher than ownership costs for other assets. To me this shows how seriosuly distorted the aussie property market is

 

[topcropper]

Putting my bear hat on for a minute, it strikes me that a 2010 rent is yielding around 6.2% on the 2002 purchasing price, which is still lower than the interest costs on a mortgage at current rates.

Assuming that the cost of renting and buying should be broadly similar, then that suggests there's been a discrepancy between the two for the last eight years (in that house's location).

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Michael's house is a high quality home in a nice area. I'd expect it to have a low yield like all top end property. What your saying might apply to lower end housing.

I't irrational to me that buying and renting should cost the same. Shouldn't buying cost more? It should, as there is a reward at the end, ownership. Housing is historically a high growth asset, been pretty safe, so has low yields. I know it's different overseas, but maybe we are right and they are wrong?

I happen to own farm land, and it's got pretty low yields too. But it's doubled in value every 10 years for 60 years, so it's been a great asset to own. It's rational to me that high growth assets have low yields, because the market prices them that way.


See ya's.

 

[keithj]

Assuming that the cost of renting and buying should be broadly similar,

I wouldn't assume that should be the case either. Rent increases by ~CPI, OTOH interest isn't affected by inflation. So in year 2 the rent vs buy costs are slightly closer, until (v roughly) by yr 10 they are equal..... and by yr 25 rent has inflated by 25 yrs of CPI vs $0 P&I, and the same for every year thereafter.

The 6.2% yield on the buy price of 8 yrs ago is probably about right - break even after ~10 yrs for a high growth property.

If things are to balance out then I'd expect rents to rise relative to prices. Or prices to fall relative to rents.

I'd say things are in balance. The alternative you suggest (ie buy & rent costs should be equal in yr 1) seems unreasonable for a growth asset if you take the subsequent yrs of increased income stream into account.

 

[atsim]

Thanks for your well informed opinions and thoughts KEITHJ and TOPCROPPER. You are the type of people i feel safe listening to