It’s become a national obsession recently.
Will interest rates be cut soon? What will that do to house prices? And should I put off buying that dream home in the hope of securing a better price down the track?
There is a lot of noise to contend with when it comes to house buying, whether it be in the media or around the BBQ at a friend’s place. Yet, all of it tends to focus on the next 6-12 months – a very short-term view in property.
Most Australians know their real estate is a long-term proposition, and this is borne out by the statistics. After all, the average Aussie house price has increased by over 80% in the last 10 years alone.
However, the noise is hard to ignore and the fear of buying a major asset that may depreciate in value in the short term would cause most people to think twice.
So, what are the specific reasons for taking a long-term view?
Meanwhile, renters will still be paying—and potentially paying more—long after those who bought have finished repaying their home loan.
Buying a property effectively acts as a long-term hedge against inflation, locking in costs for the future.
The sooner you start this process, the more financial security you build for retirement – which may seem a long way off on your 20’s and 30’s but is worth considering.
Renting v Buying – the long-term cost factor
There are only two main options when considering what you are going to spend on accommodation – renting a place or buying your own. Younger Australians tend to start their property journey by renting, as it feels less intimidating than committing to a mortgage or saving a big deposit to get one. However, renting comes with hidden long-term costs that often go unnoticed. When you rent a property, the cost is rarely fixed beyond 12 months and is therefore subject to increases due to inflation and market demand – just ask anyone renting during the last few years! Average rents in Australia rose by 33% between late 2021 and late 2023, and although this growth has slowed in recent months, rents have still been rising faster than inflation in most places. This means that as a renter your total expenditure on accommodation is rising over time. Conversely, when you purchase a property you effectively “lock in” your housing costs through your mortgage repayments. While interest rates may fluctuate in the short term, once your loan is paid off, your accommodation cost reduces dramatically, as the diagram below shows.
Meanwhile, renters will still be paying—and potentially paying more—long after those who bought have finished repaying their home loan.
Buying a property effectively acts as a long-term hedge against inflation, locking in costs for the future.
The sooner you start this process, the more financial security you build for retirement – which may seem a long way off on your 20’s and 30’s but is worth considering.
