The RBA says you're probably better off renting..

[Peter_Tersteeg]

I think Oracle is spot on with his views.

Dependinging on what Steve Keen did with his funds he may very well be hugely better off, putting it in the sharemarket over the last couple of years would have significantly outperformed

That's really the crux of it. Renting is cheaper on todays comparison. It will be continue cheaper over the long term if you invest the savings wisely. The problem is most people won't do that and 20-30 years later they'll have nothing to show for the money they 'saved'.

If all you do is buy your own home and pay it off, at least you'll have an asset and this does give you some options. Even if the house isn't as much in real terms it still beats doing nothing at all.

 

[xactly]

Its a great article.

BUT its aimed at those wondering wheter to buy an OO place or rent, within the broader questions of house prices and absolute value.
It is not an article about investors or those accumulating to retire.

It focuses on the pure financials and admits the shortcomings are the non tangibles (warm and fuzzies, freedom to knock holes in the wall and set up jungle gyms in the backyard etc). It hasn't put a monitory value on those.

take home messages:
1. if you are buying a house over renting then to get ahead you need to live there >8years and not move.

2. renting is not "dead money", it provides a service you need.

3. Homeowner satisfaction is like the new car smell as you drive it out of the lot. You will pay for it. It isn't free, it has a cost, but it will take years to notice if you ever bother to calculate it. Most people don't.

Thats why they think its free.


The only missing thing from the article is the human factor angle. most people can't save the difference between renting and house buying. so they are better off with a forced saving plan called " buying your own home" because it is the only financial discipline they will ever stick too.


talking about "my portfolio is x% on the increase over CPI so the article is wrong" have missed the point.
The article is not about investors but OO.

 

[tobe]

Id have to do the sums on average share market returns (minus the rental payments he now has to make) vs sydney property market.

I doubt Steve Keen would have put the lot in Australian shares anyhow, more likely a couple of term deposits, bonds international shares etc.

 

[Nattl3s]

You have to invest your money somewhere. Im sure buying and paying off your house quicksmart (ie 7 years instead of 30 years) will put you ahead over the long term. If you rent and then invest, the options are broadly- shares, property, cash/term deposits etc and will you come out ahead? Depends on the market. Cheers, nat

 

[nhg]

That's really the crux of it. Renting is cheaper on todays comparison. It will be continue cheaper over the long term if you invest the savings wisely. The problem is most people won't do that and 20-30 years later they'll have nothing to show for the money they 'saved'.

If all you do is buy your own home and pay it off, at least you'll have an asset and this does give you some options. Even if the house isn't as much in real terms it still beats doing nothing at all.

Well said.

We may well work out renting is cheaper (which I personally think it is), however my friends who worked that out use their 'savings' to travel. So no forced savings.

Friend: I saved $20k this year, I'm gna go on a holiday.
Me: How much is the holiday?
Friend: $10k.
Me: So you saved $10k.
Friend: No I saved $20k, so I'm gna reward myself with a holiday.
Me: Right... how's your car going btw.
Friend: Gna get a new one soon.
Me: Right...

 

[boeman]

The interest on my mortgage is far less per week than what renting the property would be. Factor in the holding costs of rates and insurance etc, and it is probably at break even comparatively.

However in 30 years I will have an asset that at a minimum you would think is worth what I paid for it. After 30 years rent what would I have if I put away the money I saved on rates and insurance into an interest savings account? $300k maybe?

Useless article is useless.

 

[Hoffy]

Its a great article.

BUT its aimed at those wondering wheter to buy an OO place or rent, within the broader questions of house prices and absolute value.
It is not an article about investors or those accumulating to retire.

It focuses on the pure financials and admits the shortcomings are the non tangibles (warm and fuzzies, freedom to knock holes in the wall and set up jungle gyms in the backyard etc). It hasn't put a monitory value on those.

take home messages:
1. if you are buying a house over renting then to get ahead you need to live there >8years and not move.

2. renting is not "dead money", it provides a service you need.

3. Homeowner satisfaction is like the new car smell as you drive it out of the lot. You will pay for it. It isn't free, it has a cost, but it will take years to notice if you ever bother to calculate it. Most people don't.

Thats why they think its free.


The only missing thing from the article is the human factor angle. most people can't save the difference between renting and house buying. so they are better off with a forced saving plan called " buying your own home" because it is the only financial discipline they will ever stick too.


talking about "my portfolio is x% on the increase over CPI so the article is wrong" have missed the point.
The article is not about investors but OO.

Agreed, very good article. And important coming from the RBA. Mathematics doesn't lie, but the "discipline" angle is what would bring most people down.

But the sooner we can eliminate the"rent money is dead money" nonsense from the real estate and mortgage industries the better.

 

[heroine]

I question their historical price growth. The average house you would get for the same money would now be very very different. I doubt anyone was thinking about cottage blocks back in 1950.

So they are not comparing the growth of an apple 1950 to an apple 2014 but to a little apple slice 30kms from the CBD.

 

[tropic]

My portfolio has done better than 5.5% over the last 10 years. The figure is probably somewhere between 9% - 11%.

Growth is irrelevant however, it's the cost of a roof over your head. My point remains the same. Rents go up (if only with inflation). The cost of borrowing is initially high, but over time inflation erodes that cost. In the long term you're far better off if you bite the bullet and buy your own home.

Some people retire well, most don't. I've never known anyone who's retired comfortably but still rents.

That's is pretty good result considering for the last 10 years.
On 10%, every 100K invested now worth 260K.

 

[Intrinsic_Value]

That's is pretty good result considering for the last 10 years.
On 10%, every 100K invested now worth 260K.

like I have bee harping on and on and on.

Look at the velocity of returns, that is the REAL secret of wealth creation.

The key now is how that original wealth creation is churned??????

 

[Ausprop]

The interest on my mortgage is far less per week than what renting the property would be. Factor in the holding costs of rates and insurance etc, and it is probably at break even comparatively.

However in 30 years I will have an asset that at a minimum you would think is worth what I paid for it. After 30 years rent what would I have if I put away the money I saved on rates and insurance into an interest savings account? $300k maybe?

Useless article is useless.

mine is similar. where is this perception coming from that it is so much cheaper to rent? as I said to a young bloke today who was fixating on this article - if your mortgage is the same or less than rent don't bother yourself with this whole debate. (different issue tho if you are highly mobile given that disgusting tax known as 'stamp duty')

 

[Ausprop]

like I have bee harping on and on and on.

Look at the velocity of returns, that is the REAL secret of wealth creation.

The key now is how that original wealth creation is churned??????

many smart people get distracted with fixating on investment returns and forgetting velocity. it's strange

 

[thatbum]

The interest on my mortgage is far less per week than what renting the property would be. Factor in the holding costs of rates and insurance etc, and it is probably at break even comparatively.

Uh want to share where it is in Perth where its cheaper to buy than to rent? Because the yields must be amazing and I'm having trouble finding such high yielding IPs at the moment.

I know where I'm renting is about half the price of the comparable mortgage + annual expenses. I believe the general trend in Perth (if not around australia) is that yields get worse as you move up the price brackets too.

 

[roe]

Don't be too dismissive of the RBA comments, it sometimes serve another purpose a gentle reminder that price is not sustainable and out of quack

for smart investors they takes notes and know what to do rather than think they are smarter than the RBA

 

[hobo-jo]

Finally. Has anyone interviewed Steve Keen yet on this? Didnt he sell his Sydney PPOR and rent a couple of years ago?

he must be hugely better off by now.....

Which just goes to show how much difference timing can make depending on the city or even suburb... I sold my PPOR to rent almost 5 years ago in Adelaide and am better off for it.

 

[MTR]

I doubt Steve Keen would have put the lot in Australian shares anyhow, more likely a couple of term deposits, bonds international shares etc.

Put it this way, who cares?? Wont be looking for money/investing tips from him.

 

[MTR]

SS seems like a place where lot of property savvy investors hang out. Yet, I don't see lot of posts that often say "Hey guys, I have just retired from property investing". May be I am wrong and people just don't share their achievements even if they are retired or retired but continue to work.

I have no doubt people who invest for the long term in property located in big cities will do well provided growth is good. What the article is saying they think growth will be OK but not good going forward.

Surely, active investors doing lot of research will do well as they buy undervalued property and also add value whenever possible. But for somebody who is not interested in active property investing or lets say an OO, who just does the bare minimum will they be better off than renting, if growth is subdued?

Cheers,
Oracle.

Good points. I retired from my day job 8 years ago from property investing, however I never really retired just learned new skills, from passive investor to developer, which I call "investing on steroids".

I also know at least 4 other property investors on SS that retired from property investing, but still do property investing and used this skill to start various businesses, and continue to build wealth
Its addictive.

 

[Redom]

I think its a great article. Of course the RBA are motivated to release this type of analysis now, they've been cautioning the housing market for the last 12 months.

At the very least, it (the actual research, not the article) debunks property spruikers unbacked claims that rent money is dead money and buying is always better. Some of you have covered off the key reasons as to why buying is better, but those reasons are often not tied to the 'purchase decision' (poor spending habits, motivations, etc).

Some of the posts on this thread are quite strange. Sure, many of you have done fantastically well in property, but that doesnt really have much to do with this article. And more qualitatively, somersoft regulars are not exactly a reflection of the average home owner/investor. Relatively speaking, significantly more sophisticated, and disproportionately represented by people in the industry!

Its very clearly about owner occupied purchases...

Also re the growth point, take a look at Treasury Secretary speeches on the next decade of income growth. There are awesome charts on the components of income growth and the very clear drivers dragging down income growth over the next decade. Combined with cyclical deleveraging, the RBA, Treasury and any good economist will be able to tell you house prices are not rising as fast as they have over the last three decades for the next three.

 

[boeman]

Uh want to share where it is in Perth where its cheaper to buy than to rent? Because the yields must be amazing and I'm having trouble finding such high yielding IPs at the moment.

I know where I'm renting is about half the price of the comparable mortgage + annual expenses. I believe the general trend in Perth (if not around australia) is that yields get worse as you move up the price brackets too.

I am not looking at overall repayments, only the interest, otherwise the argument is useless as the Interest is the cost, the principal is savings/investment or whatever you want to call it.

I pay $340 per week in interest on my mortgage, and prior to moving in it was rented out at $400 per week. My LVR is 80%.

 

[MTR]

any good economist will be able to tell you house prices are not rising as fast as they have over the last three decades for the next three.

Unfortunately economists always get it wrong.
Posting this one again.

http://danerwin.typepad.com/my_weblog/2011/02/ten-reasons-why-economists-get-it-wrong.html


"Property prices will not grow as fast over the next three decades", disagree with this comment, it will be totally dependent on where and which market you are playing in. All markets do not rise and fall at the same time and I think we all know that.