Giant Savings in Don’t Buy Now!

26 June 2012

Homebuyers who took Prosper Australia’s advice – Don’t Buy Now! – exactly five quarters ago have typically saved themselves $64,000 from the fall in property prices compared to someone who bought.

Major land price falls mean a smaller mortgage, saving a further $170,871 in lifetime interest. This shortens their mortgage from 25 years to 17 years 8 months – assuming identical repayments.

“Non-buyers are now ahead of buyers by an eye-watering $234,871. The bonus of a seven year holiday from mortgage payments confirms standing aside was the rational choice,” Prosper Australia Campaign Manager David Collyer said today.

“There are further giant savings coming for those who continue to stand aside – prices are still well above the long-term trend line. In February, Prosper forecast a 15 per cent slump in calendar 2012 with minus twenty per cent possible.

“Price movements so far this year are entirely consistent with this dour assessment and all economic indicators – including public statements by the Reserve Bank Governor – demonstrate real estate prices have no visible means of support. There are 380,000 houses on the market unsold plus a shadow inventory at least as large.

“Buyers have sensed the change and stood aside. The number of mortgages discharged now exceeds the number taken out in Victoria.

“We deplore the widespread wealth destruction many citizens are suffering. Australia has had a debt-fuelled binge driven by our very bad tax system that privileges land speculation over wage earning and business profits.

“Politicans of all parties have paid lip-service to citizens’ right to housing. You must take matters into your own hands and refuse to play when the deck is stacked against you.

“Prosper urges aspiring homebuyers to stay out of the market, save a large deposit and maintain a clean credit rating ready for the opportunities ahead,” Collyer concluded.

“Don’t Buy Now!”

The calculations after 15 months

Scenario: Jack and Jill are a theoretical two income Melbourne first home buyer couple who are renting and were poised ready to buy a home at the median $485,000 with a 20% deposit ($97,000) in March 2011. Instead, they waited, banking the interest income and the difference between the rent and mortgage interest cost.

Home purchase savings:

+44,620 Melbourne median house prices have fallen 9.2%

+36,187 Interest cost at 7.46% (WBC) on a $388K mortgage for 15 months

-22,100 Melbourne median rents $17,680 (TUV) for 15 months

+5,335 Interest earned on $97,000 savings at 5.5%



Using the most conservative calculations, standing aside will have boosted their deposit from $97,000 to $111,087 to buy a house now worth $440,380, suggesting a mortgage of $329,293. This calculation disregards recent interest rate changes to both mortgages and deposits, tax on interest income, the compounding factor in interest on savings, stamp duty, legal costs, mortgage fees, transfer fees, all principal repayments, municipal rates, insurances, depreciation and repairs. Almost all these excluded factors weaken the financial position of buyers compared to renters.

Mortgage interest savings at 6.44%:

Mortgage amount Monthly repayment Term Total Interest Cost @ 6.44%
March 2011 388,000 2,606 25 years 394,009
June 2012 329,293 2,606 17 years 8m 223,138

Media contact:
David Collyer 0413 248 193

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.


  1. Adrian B26-06-2012

    Yes, interesting David and I entirely agree when looking at the Melbourne RP market and also Adelaide to a major extent. Most people would agree that there has been overbuilding in Melb. This problem is affecting the ‘rustbelt’ states more than the resource-rich states though.
    BIS Shrapnel came out with a report yesterday predicting strong price gains over the next 3 years in Perth, Brisbane, and Sydney. The supply of rental properties is particularly acute in Perth – knowledge I’ve gained from people I know who are actually trying to rent a propoerty there. Rental prices in Perth are rising fast and this will attract investors back into the market, further supporting the high prices already established there.
    This all makes me very angry. The economy is telling unemployed people or people seeking to further their careers to move to the resource-rich states but many are stuck with large mortgages and hard to sell houses in Melbourne and Adelaide. The tax system we have in place is proving a major impediment to an efficient response to the structural changes and challenges facing our society and economy. I would have thought the state govts in the resource-rich states would be doing all they could to get properties built to accommodate the influx, but they seem to be doing little to help the newcomers who want to come and make a contribution – much better to keep current property owners happy and keep them voting for you.
    I remain confident that in the end, like the newspaper and TV industries that government protected for so long, the economic forces will be so strong that even the fed and state governments will be able to resist their onslaught. The market always wins in the end.
    I’m really looking forward to the day when the politicians have to face the music – it’s already started as I think the main reason people are so unhappy at the moment is because the days of big annual rises in the value of houses are over.

  2. Michael O26-06-2012

    Adrian B

    To work in the mining industry you have to be based in Perth as FIFO contracts generally operate Perth based. If you live in Sydney or Melbourne you have to pay for the transfers from Perth to your home in Melbourne or Sydney. Best move to Perth.

    Second is that the labour intensive construction of mining infrastructure only lasts for about 3 years until the mine begins operation. It doesn’t require many people to run a mine as it does to build one.

    Give it another 2 years and see how many people are left looking for work when many of these mines transition from build to operate.

    One thing not factored in is the downturn in China and the many mines in Africa that the Chinese have built that are about to become operational which will put pressure on prices.

  3. Shaun tarrant26-06-2012

    For jack and Jill too reach there very enviable position of 20% deposit they would actually need too have saved $115,276
    $16,856 stamp duty.
    Transfer fee $1,318
    Mortgage registration fee $102.40
    Luckily avoiding lenders mortgage insurance.
    Stamp duty is the state governments dirty cash grab on our most important purchase a roof over our head.

  4. Adrian B27-06-2012

    Michael at No.2. Michael,

    I agree with all you say. I read The Australian newspaper thoroughly and especially the columnists who seem to be bullish about WA. I would readily concede that all is not rosy with the work situation there either and as you say paying your own airfares to and from Perth every few weeks would be a negative.

    As for myself I’m moving to Perth at the end of August. My contract is about to expire in Adelaide and there is little prospect of me gaining another position here. I just feel a lot more confident about getting finance work of some kind in Perth after doing my research and talking with agencies etc.

    I agree that China will slow and is developing its own mines in Africa but once the heavy upfront depreciation charges are absorbed on the mining developments here in Aus I think our mines will be competitive shipping into Asia – especially considering our proximity to those markets. But I agree our prices will have to adjust to additional supplies from elsewhere.

    All I really wanted to say was that I think we have two housing markets – a bit like the two-speed economy. And it seems to me that the WA state govt is much more switched on than the mendicant South Australian government.

    Again, I agree and respect what you have to say.



  5. David Collyer27-06-2012

    @ Shaun. I worked to create a meaningful national model and had to exclude many factors that vary from state to state – almost all of which further advantage renter over buyer. J&J with a 20% deposit are not unique. Many striking buyers have this and more. I regard it as a minimum grubstake so one does not exchange renting a house for renting money from a bank, plus LMI and solvency and serviceability issues. This is a worthwhile and achievable savings target Homesteaders can aim for. You have 5 years. Also, house prices will be well down and the 20% ratio will be much easier.

    Yes, Stamp Duty is an outrage. The sooner we rebase taxes for the common good the better. Can we do it in an economic crisis? We will have to.

  6. Aureliana03-07-2012

    these kind of post are always inspiring and i prefer to read quality content so i’m happy to find many good point here in the post, writing is simply great, thank you for the post

  7. lolololol10-07-2012

    How long did they take to save the $97k? If it was over 6-7 years they would have been better with a 100% loan all the way back and taken the recent price increases.

  8. Hewell10-07-2012

    David is talking about don’t buy NOW, not ever, or ten years ago. I think you are confused.

  9. lolololol11-07-2012

    Am i? $97k doesnt appear from thin air. It needed to be saved. That does take time. These fictional characters could have been in a house 6 years ago. Using the $97k and $120k in rent on payments since then against that house. And then taken the recent ride up in price, and be another $50k ahead.

    Dont buy now, dont buy ever? dont really care when you buy, markets move up and down, houses are a long play.

  10. jaysen05-09-2012

    Without taking the appropriate safety measures,How to Buy a Home it is possible you could reduce that desire home you were after. Here, in this post, I will explain to you the things that you should highly consider doing before purchasing that home.

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