Five reasons First Home Buyers should stand aside
The Don’t Buy Now! campaign urges the landless not to buy real estate until prices reset, just as they have in the countries we compare ourselves to.
Property is grossly over valued measured against earnings or the rental income it can generate. This means young adults must take on a lifetime of heavy debt merely to get onto the first rung of home ownership.
The bursting of The Great Australian Land Bubble is destroying the equity of homeowners around the country. We expect this process to take about five years, of which a year has passed.
Young Australians should ignore all those with vested interests – including parents, colleagues and friends – and consider whether the best time to buy is today. A pause allows buyers time to save a larger deposit – to escape mortgage payments earlier and achieve genuine economic independence sooner.
1. Renting is around half the cost of buying
With rental yields rarely above 3 to 4 per cent, renting is almost half the cost of mortgage interest, before considering council rates insurances and maintenance.
You will have heard the phrase “rent money is dead money”. The interest paid on a mortgage is equally wasted. If interest charges exceed the rent otherwise payable, then there is more “dead money” in buying than renting!
Consider the savings in renting. The gap is enormous – equal to an overseas holiday every year or a brand new car every two years.
2. Falling prices will continue
Australia is grossly oversupplied with housing. SQM Research says there is over 385,000 houses sitting unsold on the market.
1.1 million Australians have negatively geared rental properties. This wealth strategy
only works at a time of strongly rising prices. The overwhelming majority are middle income earners without the equity necessary to protect their position.
Negatively geared investors are desperate and are now discounting to sell. This is where the real declines begin. The new trend will prompt more owners speculating on rising house prices to exit.
3. You may quickly outgrow your first home
One lousy idea we hear often repeated is that you should just “buy whatever you can afford” when it comes to your first home. “Just get your foot in the door”, they say,
“and work your way up the property ladder”. The risk is, you may outgrow your first home very quickly.
Imagine you have bought a two bed ‘starter’ unit. Two years later, the casual relationship with your partner is serious and you are planning a family. Buying a bigger house means real estate commissions, stamp duty, conveyancing and presentation costs. That ill-fitting ‘starter’ home will probably prove an expensive mistake.
Consider all possible outcomes. Under most scenarios, you are better off renting until you can afford a home that will last years.
4. Ownership ain’t all it is cracked up to be
What are the benefits of owning? Beside bragging to friends that you are now a proud homeowner? Can you really justify the extra cost?
The answer may be yes – for some. For those who dream of landscaping, painting, renovating or extending, and those who crave the stability of ownership, buying may be the best option. For everyone else, at current prices, the extra costs of ownership outweigh the benefits.
Renting offers peace of mind, knowing if something breaks (heating, stove, plumbing, electrical) it is just a matter of calling the landowner to organise a fix.
5. Sharing or renting = freedom
A large mortgage is a heavy burden. You should enjoy the freedom renting or living with parents provides while you can and use the opportunity to accumulate a large deposit.
It is much more difficult to save once you are locked into a 30 year binding commitment to pay a large proportion of income on a house mortgage.