Is this a good or bad thing for investors?

[HiEquity]

Excuse my ignorance, but what's an OO?

Owner Occupier

 

[Sunder]

There is a massive change in fundamentals, there's v. low vacancy caused by high immigration & low new building starts. People don't want to live in the crappy dump that's always last to rent out, they want a decent place, and are prepared to pay for it.

The only person I've ever heard who thinks like that is YM. I never hear of people thinking, for $400pw extra I need to vist a few REAs, spend 3%+ of my house value in agents fees for sell it, hire removalists, allow strangers to look through my house most Saturdays for 3 months, find somewhere as nice to rent.... and then do the same in reverse again next year when rents go up & they decide to buy another PPOR!

I agree the fundamentals are changing - but changing slowly. It doesn't justify the "spikes" in rent in the last 12-18 months. We'll let that one go however.

With your second point, this is the difference between personal behaviour, and mass market behavior. The internal dialogue may not sound like that, but I can't list every single one of the variations how about:

18 year old apprentice on $350 a week - doesn't even think about buying. Knows it's so far out of his range that it's not possible, but if the mortgage was comparable to renting, would buy.

25 year old newly married couple - Accept they'll rent for the first 2 or 3 years, because they want a bigger deposit, so their repayments aren't so high. But if repayments were lower, might go a 100% LVR loan.

45 year old married couple, have to start working an extra job to keep up repayments. Decide they may have to let go of the house.

45 year old single mum, when interest rates went from 6% to 9%, has to decide between school excursions and keeping the mortgage payments up.

Family of 5, dad already working 2 jobs, mum already working part time, and they're already 3 months behind... But they could easily handle rent.

So no, you're right, not many people think like I verbalise - but in one variation or another, the DIFFERENCE in the price of renting vs buying is the decision maker for them. Either by making them delay, or to the extreme of being forced out.

 

[HiEquity]

So no, you're right, not many people think like I verbalise - but in one variation or another, the DIFFERENCE in the price of renting vs buying is the decision maker for them. Either by making them delay, or to the extreme of being forced out.

But when they are forced out it is other owner occupiers who buy because the investors have left the market! So while investors are an ever decreasing part of the market (and they are...), forced sales like this don't actually improve rents. It's only when investors start becoming a bigger section of the market again that pressure on rents will reduce. If prices drop from forced sales then investors will get more involved (all other things being equal) but that is all down to the OOs and is a factor once removed from the direct pressure on rents. Rising rents are a direct, immediate balance for the investors who aren't buying anymore so I don't see it going away soon because yields are still too low in vast swathes of the country.

And there is little evidence that OOs are defaulting in large numbers, just price stagnation / drops in some areas which isn't enough to get the investors back - yet.

 

[Sunder]

But when they are forced out it is other owner occupiers who buy because the investors have left the market! So while investors are an ever decreasing part of the market (and they are...), forced sales like this don't actually improve rents.

We're talking transition here. People who are living in houses, but looking for rentals, or still renting a house while waiting for house prices to drop - but more importantly, vacant possession houses.

If a renter buys a PPoR = No change in demand (1 down demand, one down supply)

 

[Francesco]

I agree the fundamentals are changing - but changing slowly. It doesn't justify the "spikes" in rent in the last 12-18 months. We'll let that one go however.

IR increases in the last 12 months about 0.75% RBA and maybe up to 0.25% initiated by bank to shore up balance sheets. Average interest increased for PI on an average house price of say $400k = $4,000 per annum or $77 per week. Spike on rental needs to continue for about 1.5 years because of state control through Tenancy Tribunal on rent chargeable to absorb the big spike in IR increases! Probably it is reasonable to blame banks and RBA for the "spikes" in rent increases.