Third Of Australian Homes Cheaper To Buy Than Rent
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Third Of Australian Homes Cheaper To Buy Than Rent

Low interest rates and ascendant regional rent prices have seen mortgages look attractive.

By Kanebridge News
Thu, Jul 15, 2021 10:18amGrey Clock < 1 min

Outside Australia’s two most populous major capital cities – Sydney and Melbourne – the incentive to buy a home has never been higher with homes across the rest of the country generally cheaper to buy than rent.

Only 4.9% of homes in Sydney and 7.3% of homes in Melbourne were cheaper to buy than rent, according to a new report by Corelogic.

Elsewhere, between 43% to 96% of other Australian addresses are cheaper to service a mortgage when compared to renting, including Brisbane.

The report showed buying cost less than renting at 36.2% of properties across the country, up from 33.9% last year.

Further, the demand for new homes increased by 15.3% driven by owner-occupiers while rent went up where domestic migration was strong.

Proportion of homes cheaper to buy than rent

Capital Percentage cheaper to buy Regional homes Percentage cheaper to buy
Darwin 86.5% NT 96.4%
Perth 59.6% WA 79.4%
Brisbane 55.3% Qld 73.1%
Hobart 50.2% Tas 71.4%
Adelaide 47.4% SA 47.4%
ACT 43.6
Melbourne 7.3% Vic 43.6%
Sydney 4.9% NSW 48.2%
Combined 26.2% Combined 60.1%

^Source: Corelogic Property Pulse

“The combination of lower rent growth and very strong dwelling value growth has meant that even fewer properties across Sydney are cheaper to pay down a mortgage than rent, at just 4.9 per cent,” said Corelogic head of research Eliza Owen.

“This is down from 7.1 per cent when the analysis was done with the same assumptions in February 2020.”

Owen added results were also indicative of lower interest costs on mortgage debt since the onset of Covid-19.

“However, reduced interest costs have not led to cheaper mortgage serviceability relative to rents in every instance,” Owen said.

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Mortgage holders should brace themselves for more pain as the Reserve Bank of Australia board prepares to meet tomorrow for the first time this year.

Most economists and the major banks are predicting a rise of 25 basis points will be announced, although the Commonwealth Bank suggests that the RBA may take the unusual step of a 40 basis point rise to bring the interest rate up to a more conventional 3.5 percent. This would allow the RBA to step back from further rate rises for the next few months as it assesses the impact of tightening monetary policy on the economy.

The decision by the RBA board to make consecutive rate rises since April last year is an attempt to wrestle inflation down to a more manageable 3 or 4 percent. The Australian Bureau of Statistics reports that the inflation rate rose to 7.8 percent over the December quarter, the highest it has been since 1990, reflected in higher prices for food, fuel and construction.

Higher interest rates have coincided with falling home values, which Ray White chief economist Nerida Conisbee says are down 6.1 percent in capital cities since peaking in March 2022. The pain has been greatest in Sydney, where prices have dropped 10.8 percent since February last year. Melbourne and Canberra recorded similar, albeit smaller falls, while capitals like Adelaide, which saw property prices fall 1.8 percent, are less affected.

Although prices may continue to decline, Ms Conisbee (below) said there are signs the pace is slowing and that inflation has peaked.

“December inflation came in at 7.8 per cent with construction, travel and electricity costs being the biggest drivers. It is likely that we are now at peak,” Ms Conisbee said. 

“Many of the drivers of high prices are starting to be resolved. Shipping costs are now down almost 90 per cent from their October 2021 peak (as measured by the Baltic Dry Index), while crude oil prices have almost halved from March 2022. China is back open and international migration has started up again. 

“Even construction costs look like they are close to plateau. Importantly, US inflation has pulled back from its peak of 9.1 per cent in June to 6.5 per cent in December, with many of the drivers of inflation in this country similar to Australia.”

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