New Home Owners Gain $180,000 In Six Months
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New Home Owners Gain $180,000 In Six Months

Savers in the meantime are losing out.

By Terry Christodoulou
Thu, Oct 7, 2021 2:22pmGrey Clock 2 min

Homeowners who purchased property six months ago are up to $180,000 better off than if they had invested their savings elsewhere, a new analysis by Canstar reveals.

The research shows that if a Sydneysider bought a house for the median price of 1,112 671 in March with a 20% deposit of 222,534 the value of their property would have risen by 16.3% by last month. In dollar terms that equals a massive $181, 365 by last month.

The same 20% deposit invested in a six-month term deposit at the highest interest rate of the time – 0.99% — would have just earned $2203 in comparison. A stark difference.

Alternatively, if the same amount was investing in the Australian sharemarket, shares would have grown by 10.02%  — a robust difference over the savings account yet nothing when compared to the increases in property investment.

It’s not only a Sydney story either. In Melbourne where a homeowner who invested in a house with a 20% deposit of $171,819 based on the median price of $859,097 back in March would have gained a 10% rise of $85,910 by September.

In a term deposit savers would have only earned $1701 and in the sharemarket a comparatively low $17,216.

According to Canstar’s finance expert Steve Mickenbecker, it’s apples and oranges when comparing the value found in housing and term deposits.

“Housing and term deposits are chalk and cheese when it comes to investing surplus savings. Both can form part of an investment portfolio but they perform different functions,” says Mickenbecker.

Yet there are pros and cons to both forms of investment.

“Term deposits are low risk, with a government guarantee for a total up to $250,000 with any one bank, while house prices can fall,” he said.

“Housing as an investment lacks the flexibility of cash in the bank. You can’t cash in $30,000 of the house to cover living expenses, and the sale of the property can become protracted.’

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House values continued to fall last month, but the pace of decline has slowed, CoreLogic reports.

In signs that the RBA’s aggressive approach to monetary policy is making an impact, CoreLogic’s Home Value Index reveals national dwelling values fell -1.0 percent in November, marking the smallest monthly decline since June.

The drop represents a -7.0 percent decline – or about $53,400 –  since the peak value recorded in April 2022. Research director at CoreLogic, Tim Lawless, said the Sydney and Melbourne markets are leading the way, with the capital cities experiencing the most significant falls. But it’s not all bad news for homeowners.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3 percent,” he said. “That has now reduced by a full percentage point to a decline of -1.3 percent in November.  In July, Melbourne home values were down -1.5 percent over the month, with the monthly decline almost halving last month to -0.8%.”

The rate of decline has also slowed in the smaller capitals, he said.  

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls,” Mr Lawless said. “However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.” 

The RBA has raised the cash rate from 0.10 in April  to 2.85 in November. The board is due to meet again next week, with most experts still predicting a further increase in the cash rate of 25 basis points despite the fall in house values.

Mr Lawless said if interest rates continue to increase, there is potential for declines to ‘reaccelerate’.

“Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Statistics released by the Australian Bureau of Statistics this week also reveal a slowdown in the rate of inflation last month, as higher mortgage repayments and cost of living pressures bite into household budgets.

However, ABS data reveals ongoing labour shortages and high levels of construction continues to fuel higher prices for new housing, although the rate of price growth eased in September and October. 

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