Why Renting Makes Sense Right Now (even if you can afford to buy).
Last night I stumbled upon a thread in the r/AusFinance subreddit entitled Did I make the right financial decision? Just bought a House 20km north of Brisbane CBD
The obvious answer to this question is no. Prices were at an all time high not long ago and are now dropping. But as you will see if you click through and read, the consensus was the opposite. If you can make the repayments, it’s better to pay off your own debt than someone else’s. But this perspective is innumerate. Landlords are often losing money on their properties, subsidising tennants. One such landlord I know is paying about $1200 a week in mortgage payments, and collecting $900 a week in rent. The $300 gap was acceptable when prices were rising by more than that each week, but now it’s losses layered upon losses.
That doesn’t fit with an easy moralistic picture of landlords as winners (and arseholes) and renters as losers (and nice guys), but that story is bullshit. Landlords in Australia are Uber drivers, except with houses instead of cars. The banks are Uber. Actually some landlords are also literally Uber drivers, but I digress.
Drowning in downvotes, I found myself compelled to go over it in painful detail:
On June 19, prices in Brisbane peaked. The Core Logic house price index value for that day was 160.73. By 19 september it was 154.27. That’s 6.46 index points, or 4.02%. A house that cost 630k in June would , by September, have lost $25321 in value.
Over the same period, OP could have rented this lovely 4 bedroom house in the same suburb for $600 a week. or $7,200.
$25321 — $7,200 = $18,121.
There is a strong probability, that prices will continue to fall at a similar rate, or will accelerate their falls, as the RBA raises rates, which will lower the maximum amount people can borrow.
Over the course of a year, which is a pretty conservative timeframe for the duration of this correction, a rent-and-wait strategy like this will come out ~70k ahead.
Edit: or they can spend the same amount and get a nicer house.
But that example doesn’t even really do the “rent-and-wait” strategy justice. $630,000 is significantly below the average Brisbane house price as of September, which is $864,000, down $22000 in the month of August. The most recent data I could find on average rental prices in Brisbane was $520 in June. Let’s whack another 10% on top, so no one can accuse me of low-balling the rent estimate 520 + 52 = 572. There are 4.3 weeks in September. 4.3 x 572 is 2,459.
22,000–2,459 = $19,541
In the month of August, a person renting an average house in Brisbane came out nearly $20,000 ahead in a single month. If you believe that there are more months like this to come, the best place to be is in a rental.
If you sell now, lease for a year and buy a similar house in a years time, you could be >$100,000 ahead. Or you could buy a better house!
The only reason to think that this is a bad idea is if you think housing is actually going to be up, or flat over the next 12 months. It’s hard to see how such a view can be justified given the trajectory of interest rates and the global economic slowdown.
Let’s take a look at Sydney:
Average rents in June were $620. + 10% makes $682 (significantly less than house prices are falling per day in Sydney). 682 x 4. 3 = 2,932
Essentially, you would be ahead by almost the full 30k that house prices fell. Weekly rent is a scale of magnitude less than the weekly movements in house prices.
What about Melbourne?
Actually fuck melbourne. The margins will be less than Sydney and Brisbane, probably. But you can do the maths for yourselves, hipsters.
This applies to anyone, anywhere. It’s Monthly Falls, minus Monthly Rent = Gains from renting over owning.
Of course, you could push the margins a little bit further by downshifting to a cheaper rental. If you have bought more house than you need because it was a good investment now is the time to cash in. Well, actually, January was the best time (in Sydney). Now is the second best time.
Obviously there is one major problem with this line of thinking: Renting sucks all kinds of dick. It’s awful. And as landlords start to cotton on to how badly they are doing, you can expect it to get worse.
But burning tens of thousands of dollars a month sucks, in my reckoning, significantly more.