We are experiencing a unique time in the property cycle that has opened up a huge opportunity for potential home owners, as we see the pendulum swing to make owning your own home cheaper than renting! With interest rates so low and on the downward trajectory, it seems the goal posts have really shifted when it comes down to the analytics of the age-old “rent versus buy” debate.
For first and second home buyers in particular, it seems the fundamentals are finally aligning in their favour, especially after the recent announcement of deposit guarantees by the Federal Government. For many years media and property commentators have been scrimmaging about housing affordability and the necessity of a housing correction to decrease prices and re-establish an affordable norm for households. Property bears love to talk about the high and unsustainable percentage of household income spent on mortgage repayments.
In Melbourne, people are now spending 34.4 per cent on mortgage repayments on average. Is that terrifying? Well the media and commentators forget to weigh up the statistics of the alternative – renting. So, surely renting must be significantly more affordable? Simple answer, nope. Latest stats show Melbourne is spending a staggering 28 per cent of their household income on rent. So in Victoria the proportionate difference between owning your own home and renting is a mere 6% of income. However, this does not account for the recent material drop in prices of 5-15%, huge drop in interest rates to the lowest point on record, at the same time that rents are rising. This incredible shift in circumstance has resulted in it becoming more affordable to own than to rent for the first time, at least in my lifetime.
