Corelogic says a growing number of homes are more affordable. So why aren’t people buying?
So Corelogic have released data again that says that for one in three properties across the country it is now cheaper to buy than rent:
… Buying trumps renting in 3411 suburbs around the country, with regional Queensland and NSW offering some of the best opportunities for buyers.
Overall, more than one in three (36.2 per cent) properties across the country are cheaper to buy than rent, higher than the 33.9 per cent recorded in February, before the pandemic hit.
“The rise in the number of areas where it is cheaper to service a mortgage than to pay rent across the country, when compared with pre-COVID analysis, is a reflection of much lower interest costs on mortgage debt since the onset of COVID-19,” said Ms Owen.
Average new mortgage rates for owner-occupiers have fallen from 3.21 per cent in February 2020, to 2.40 per cent as of May 2021, according to RBA data.
36% of homes? This is a big number. Sure, rents are growing at the strongest clip in a decade, and interest rates are at rock-bottom levels, so it’s perhaps not that surprising.
But still, are that many houses really that affordable?
And why is anyone renting?
Well, first up, it’s all about the regions. If you want to find these places where its more affordable to buy that rent, you probably have to head bush:
More than nine in 10 (94.6 per cent) homes in Townsville were cheaper to buy than rent, it was more than eight in 10 (88.8 per cent) in Cairns and almost eight in 10 (79 per cent) in Toowoomba.
In the far west and Orana regions in NSW, nearly nine in 10 (89.1 per cent) homes were cheaper to buy than rent, it was 78.7 per cent in Shepparton, Victoria and 95.8 per cent in the WA outback.
Closer to the capitals, buying trumps renting in more than eight in 10 (81.8 per cent) homes in Logan-Beaudesert area, while more than eight in 10 favour buyers in Ipswich and Darwin.
Where even is Orana?
But if you come into the capitals, those affordable properties become harder to find:
“Property values and rents across the combined regional areas of Australia suggest 60.1 per cent of properties are currently cheaper to service a mortgage than rent, while across the capital cities, this is only true of around one-quarter of properties.
In Sydney, buyers were better off in only 0.7 per cent of all homes in Ryde, 1.1 per cent in the inner west and 1.3 per cent in the northern beaches.
… Melbourne buyers trump renters in 5.9 per cent of homes in the west, 4.9 per cent in the inner east and 3.9 per cent in the inner south.
But the other thing with this is that this analysis only compares the mortgage servicing cost with the estimated rent of a property.
That is, it completely ignores the deposit.
But saving for a deposit is arguably the toughest part of buying a new home. It’s the deposit, much more than the mortgage servicing costs, that make a property expensive.
Nevertheless, the general point here is true. As rents becomes more expensive, buying a home becomes more attractive.
This pulls more buyers into the market.
And that pushes up demand.
And that pushes up prices.
And my guess is that 36% will be a high-water mark, and rising prices will push this figure back down towards 33% sooner or later.
JG.