Don’t Buy Now! campaign saves buyers $58,000 in one year

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28 March 2012

Young homebuyers who took Prosper Australia’s advice – Don’t Buy Now! – exactly a year ago have typically saved themselves $58,000.

“I congratulate everyone who stood aside from this dreadful Ponzi scheme known as the Australian property market,” Prosper Australia Campaign Manager David Collyer said today.

“These savings are staggering – they are genuine and they are conservatively calculated. For homebuyers who waited, it is as if someone just slipped this much in their wallet.

“It would take years to save $58,000 from after-tax earnings.

Consider a typical Melbourne first home buyer couple with a 20% deposit ($120,000) ready to buy a home at the median $585,000 a year ago. Instead, they waited.

Their savings:

Melbourne median house prices have fallen 6.1% (ABS) – $35,000

The difference between Melbourne median rents $17,680 (TUV) and interest at 7.46% (WBC) on a $465,000 mortgage (ignoring stamp duty, principal repayments, rates, insurance, depreciation and repairs) – $17,009

Interest earned on $120,000 savings at 5.5% (ignoring tax) – $6,600

TOTAL: $58,609

“There is a further long-term benefit not included above: the smaller required mortgage would leave an extra $250 per month interest in a buyer’s pocket, or $41,000 over a 25 year loan. This money would be available at the buyers’ discretion for living expenses or to accelerate principal repayments.

“This is not a cue to immediately buy a house,” Collyer warned.

“Prosper expects house prices to fall much further. We repeat our forecast made February 23 of house price falls of at least 15 per cent and possibly 20 per cent this calendar year.

“A fall of this size will deliver massive further savings to those who resist the temptation to commit to a working life of toil lived 90 days from bankruptcy.

“We urge prospective homebuyers to focus on saving as large a deposit as possible. Avoid exchanging renting a house for renting money from the bank. That is not the path to economic freedom.

“Don’t Buy Now!” Collyer concluded.

Media contact: David Collyer david.collyer@prosper.org.au

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise to capturing the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax.

16 Comments

  1. Edwene G31-03-2012

    You meant to say
    “Buy Now” —
    or be sad for being poor forever.

  2. Natasha Edwards – Melbourne Australia01-04-2012

    Indeed coming on strong prices…
    Because it is costing you too much, and because it is holding back your wealth-creation plans
    Property is an important part of everyone’s portfolio — and long-term wealth creation. Such a scenario has reinforced the addition of passive income to overall wealth creation process
    Your home, whether you rent or buy, is investment central. It’s a decision pivotal to your wealth creation plans.Creating a realistic budget and then sticking to it are the two essential skills needed to make this sort of income-producing venture work for you.
    As my young friends know already, real estate is a proven way to invest money for long-term wealth creation.

  3. FuriousRenterBought01-04-2012

    BUY NOW!!!!!!!!!1

    And Buying carefully then there’s never been a better time than today. As opportunities are drying up.

    Gerard

  4. Escaped The Rent TRAP 7-Years Ago01-04-2012

    Real estate prices in Australia
    are still low.

    So, if you are saying to yourself,
    That sounds great,
    but I can t quit my job and begin investing full time.
    I’ve got bills,
    kids in school, car payments, and a mortgage to support,
    then you re in luck.

    I would expect 40-50 per cent rise acceptable on price volumes to come from this,
    but not more than 10 to
    15 per cent of our resell profits this
    year.The profit from real estate investments far exceeds almost any other investment.

  5. Troy01-04-2012

    David, spot on. Here in Adelaide the drop in prices is quite obvious… I’ve been watching townhouses in Adelaide cbd for years and over the last year most of the asking prices have probably dropped $20 to $25k from peak. I’ve also looked up values on websites that have previous sales values for some properties and prices are down from late 2009 / 2010 peaks. It’s insane to think if I’d bought just over a year ago it would have been the equivalent of flushing $25k down the toilet – except that if I’d bought the house I’d still be paying interest on that money too!

  6. David Collyer02-04-2012

    There are three comments here from faithful souls who believed the spruikers line ‘Onward and Upward, Lads!’and bought property. Having made this major commitment, it becomes terribly important everyone else follows to keep the up the buying pressure.

    Sadly, they offer not a shred of evidence to back their position. Compare this to the thoughtful and wide-ranging economic analysis undertaken by Prosper.

    Please, contest our position, argue the point. But please, back your stance with facts and information, not faith and hope.

    These are not ordinary times. We observe house prices have departed their fundamental connection to incomes and rents. The inevitable return to lower prices will be very painful for anyone with a large mortgage.

    Don’t Buy Now!

  7. Mel from RAMS02-04-2012

    This article illustrates the importance of saving; for first home buyers especially, saving for a property is inevitably conserving your future financial security. If these statistics are correct, and housing prices continue to decrease, this is a great incentive for budgeting and prioritising finances.
    It deserves to be highlighted how allocating money and saving for future assets can help with your future wellbeing.
    Saving can be viewed as an investment; therefore prioritising finances to reap the benefits is a good way to go. Here is a link to a trending discussion referring to the importance of budgeting and saving for home investments:
    http://bit.ly/ybbB25

  8. Bobby Fischer04-04-2012

    David,

    Keep up the great work! You and Prof Keen are 2 of the few HONEST punters out there. How the spruikers try and twist a 58K loss in a year in one of our major capital centres into a positive I’ll never know.

    PS you should do an expose re: the speculative vacancy rates in all the capitals. Australia will be just like America and the UK: all this ‘housing shortage’ will be shown to be lies after the bubble is well and truly burst, and the market is further flooded with further housing stock for sale and large numbers of rental properties also hitting the market…

    Cheers

  9. John Murray04-04-2012

    Studying the history of the last two decades, and listening to the leading lights of the property sector I can conclusively, and without reservation say “whenever you wish to buy, it will always occur at a time that it has “never been a better time to buy””.

    It is, mantra like, a constant no matter what the market is doing, flying up at massive rates, stagnating, our indeed as now falling.

    So all together now………

    “there has never been a better time to buy”.

    LOL.

  10. Dave Smith04-04-2012

    You guys sound like those housing bears who think house prices will crash when the ‘credit tap is turned off’. It aint gonna happen! That’s the sort of bad attitude that’s been causing the problem. It’s not unsustainable and you need to educate yourself on the reasons for growth in house prices, check out the Zetaboards Property Forum to see why prices are supported by fundamentals, and why it’s virtually impossible for prices to fall from here. There is no ‘crisis’ as such. The world population is growing, and we must get used to higher density. We elected the government, so you must accept their decisions. It’s called democracy.

  11. David Collyer04-04-2012

    Gosh! What awful people we are at Prosper! For the record, no, we don’t think prices will crash because ‘the credit tap is turned off’. We see the speculative bubble failing under the weight of its own contradictions when citizens can no longer afford to buy, price/rent ratios are so silly it doesn’t make sense to invest and there is so much housing stock on the market it starts to rot. Like right now.

    And look! The credit tap is still fully open. Citizens are no longer main-lining debt; they have privately decided to save.

    We have a ‘bad attitude’ toward any economy society that expects its young to pay nine times incomes to buy a house. That is debt peonage. We condemn it and join the revolt.

    We want tax reform. We want the government to take its revenues from nature’s bounty (mining tax, land tax) and untax wages and business. We want this for you.

  12. NOT A TRUE BELIEVER06-04-2012

    WANNA HOUSE BUDDY? NO NEED TO GET INTO DEBT AT ALL! IN THE U.S.SPAIN,GREECE,IRELAND,U.K. AND GROWING PARTS OF REGIONAL AUSTRALIA YOU’LL GET ALL THE HOUSES YOU WANT FOR THE CHANGE IN YOUR WALLET. CHECK OUT A VIDEO ON YOU-TUBE TO SHOW YOU UNCANNY PARALELS BETWEEN AUSTRALIA AND IRELAND.(AUSTRALIAN HOUSING BUBBLE)

  13. Realist18-05-2012

    Dave Smith – you lost all credibility when you said ‘as such’ buddy, the term is overused by uneducated people trying to sound smart.
    I hope your mortgage is under control – if not I’ll throw a lowball bid in for your place when it pops up in the distressed/mortgagee section on domain

  14. alex19-05-2012

    you forgot a couple of other potential savings. 1. Stamp Duty; and 2 Lenders mortgage insurance (if the price decrease resulted in you not requiring it), although not likely to be reqd with a 20 pc deposit

    As for Dave Smith – “virtually impossible for prices to fall further” ? really mate get a grip on reality please.

    cant even understand ramblings of first 4 commentors -obviously in a stupor caused by their geared losses.

  15. GM24-05-2012

    Note that the buyer at 585k would also have had to pay stamp duty of a couple of % on top of the “listed” price. So falls in median values understate the true price drop

  16. Jane Quinn09-06-2012

    I wonder why house and land prices in the Pilbara can be allowed to escalate by 400% virtually overnight, when mining projects come into a town? We tried to buy twice in Onslow WA,when houses there cost $49 – $150.000. This was in 2003 – 2005 just before BHP came aboard and took over the town.

    There was even a ballot at that stage to get people to buy. We were knocked back, the reason being that we had moved jobs etc. Once the mine was definate, the real estate suddenly was of interest – to the rich!.

    In 2005 Prices on one house went overnight from being worth $50.000 to $450.000. The house we could have bought if we were given a go went from $75 – to around $400.000!

    We could not come up with that sort of money and being renters, were forced to leave town.

    Incidently the house we were renting at $150 a week is now being rented for $1400 a week. The only positive thing that came out of this is that many locals sold their houses, upgraded to a better one and cashed in for their retirement. Seventy houses turned over in one year . I’m talking about a town at that time with a population of 800. The ones that didnt sell and but another are sitting on equity only and the cost of living has sky rocketed.

    The result – The local shop runs out of food for the locals because the town has turned high vis!!!. People that loved the place cant afford to stay. Tourists no longer have accomodation, and there are at least two barges floating in the bay for overflow of workers.

    Is this progress or destruction of a lifestyle???

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