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%
+64,042 TOTAL SAVINGS
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.