Renting V Buying

[Wooba]

You're so sure there will be a crash but I wouldn't bank on it if I were you.

 

The peak of the last bubble in Canada was 1989. People were saying the exact same thing at that time (just as they do everywhere for every bubble). My parents were unlucky enough to buy at that time. Prices didn't stop their decline until around 1995. It took until about 2005 - 16 years - just to BREAK EVEN. This was at at time when interest rates were very high and declined ever since. Had my parents rented (and invested their down payment/monthly savings) during that time they would have been so much better off it's mind boggling.

 

I am not for a second suggesting they you shouldn't buy ever. At the right time, under the right circumstances buying real estate makes a lot of sense. But at the wrong time it's illogical and frankly stupid. This is one of those times.

[Wooba]

Great chart on how bubbles goes. Wonder where Australia is?

 

[Shellybingobingo]

I am renting in Brisbane until December 2nd just to get my son through school , I am renting a two bed house now in Perth due to husbands job total for both rents $900 a week . I can also tell you Brisbane is not booming , Brisbane government though still spending on infrastructure based on money gained on previous projects ie Lng , but these are at a end . My husband worked FIFO on design in Brisbane we have saved enough money for a deposit for a house and now working in Perth in a good job full time . Truth is though we are not confident in the current economy, work situations and housing market , and therefore will not buy at this time . If you cannot gaurentee work and believe that house prices will fall anyway , why would you buy now ! It would be nice for us to be in our own home,but won't let our heart rule our head .

Edited August 23, 2015 by Shellybingobingo

[Peach]

The peak of the last bubble in Canada was 1989. People were saying the exact same thing at that time (just as they do everywhere for every bubble). My parents were unlucky enough to buy at that time. Prices didn't stop their decline until around 1995. It took until about 2005 - 16 years - just to BREAK EVEN. This was at at time when interest rates were very high and declined ever since. Had my parents rented (and invested their down payment/monthly savings) during that time they would have been so much better off it's mind boggling.

 

I am not for a second suggesting they you shouldn't buy ever. At the right time, under the right circumstances buying real estate makes a lot of sense. But at the wrong time it's illogical and frankly stupid. This is one of those times.

 

I've seen that Canada graph and it still shows that a house bought for $400,000 the peak of house prices in 1989 would be worth $800,000 in 2015 (at the time the mortgage was coming to an end or paid off).. Still seems a good deal to me. I was reading the same "sky is falling" crap when I bought my first house in the early 2000s, glad I ignored it.

[Shellybingobingo]

You do whatever you thinks best ! The reality is there is no point having a big mortgage if you have no job pay for it . Who wants live with the potential worry of that . So if it falls it falls if it doesn't it doesn't . How does the saying go ... Wise men say only fools rush in . For us and no doubt others they will be seeing how things look for a while .

[Wooba]

I've seen that Canada graph and it still shows that a house bought for $400,000 the peak of house prices in 1989 would be worth $800,000 in 2015 (at the time the mortgage was coming to an end or paid off).. Still seems a good deal to me. I was reading the same "sky is falling" crap when I bought my first house in the early 2000s, glad I ignored it.

 

Statistically these days, most people don't live in a home for more than 5 years. The chances of someone actually living in their place for the full term of a mortgage is pretty slim.

 

That said. In 1989 it was required to have a 20% down payment in Canada for a mortgage. That would have been $80,000. The average rate of return for that time for a balanced portfolio in Canada during that time would be around 7%. That's $464,000. Doesn't sound as nice as $800,000 for sure. But a person who would have made the decision to invest (or buy a smaller, cheaper place - $400,000 in 1989 would have been for rich people only) would almost certainly have invested their savings from their expensive mortgage towards their portfolio and come out far, far ahead. Pretty much anyone who bought in 1989 lost money. Whether it was one of the many thousands who lost their homes because they couldn't pay the mortgage or those like my parents that were able to hold on, but stuck with something worth much less than that paid for it for many years. Pretty much anyone who bought starting in the mid 90s came out very well indeed.

 

I don't subscribe to the sky is fall crap. It doesn't happen often, if ever. Even the "crash" in the USA a few years ago wasn't really a crash. It was a slow but relentless decline over several years, slowly strangling many of its victims. The eventual correction in Canada and Australia will likely be similar. It's great that you ignored the warnings and did well, but to believe it will always be that way is naive. History has repeatedly shown that to be true everywhere. It's not a question of will there be a correction. There absolutely will be. The question is when. Everywhere I look I see young people encouraged by their parents who've done so well over the last 20 years with real estate to follow in their footsteps. Sacrificing their finances and mobility for a property they think can only ever become more valuable. Even many of those that were punished in the early 90s seem to have forgotten their lessons. Because of course "it's different this time".

Edited August 23, 2015 by Wooba

[Wooba]

I've seen that Canada graph and it still shows that a house bought for $400,000 the peak of house prices in 1989 would be worth $800,000 in 2015 (at the time the mortgage was coming to an end or paid off).. Still seems a good deal to me. I was reading the same "sky is falling" crap when I bought my first house in the early 2000s, glad I ignored it.

 

 

I was very curious, what would it cost to have bought that hypothetical house in 1989? I did some rough calculations for it based on the 5 year rates posted on the bank of Canada website.

Mortgages here are pretty much always done in 5 year chunks. So even though you take a 25 year amortization, you actually only sign up for 5 years at a time. For year 6 - 10 you re-negotiate a new rate and so on.

I want to be clear this is sort of a worst case scenario. I didn't take into account things like keeping your mortgage payment the same when rates decrease or taking a variable interest rate which historically has been much better than fixed rates - but most people still take fixed rates.

 

 

1989

12.25% interest

Monthly payment $3,358

 

Period Total Paid Interest Principal Balance

Year 1 $40,298.00 $38,118.69 $2,179.31 $317,820.69

Year 2 $40,298.00 $37,843.55 $2,454.45 $315,366.24

Year 3 $40,298.00 $37,533.67 $2,764.33 $312,601.91

Year 4 $40,298.00 $37,184.67 $3,113.33 $309,488.58

Year 5 $40,298.00 $36,791.61 $3,506.39 $305,982.19

 

 

1994

7.25%

Monthly payment $2,398

 

Year 1 $28,783.02 $21,624.53 $7,158.49 $298,823.51

Year 2 $28,783.02 $21,096.13 $7,686.89 $291,136.62

Year 3 $28,783.02 $20,528.73 $8,254.29 $282,882.33

Year 4 $28,783.02 $19,919.45 $8,863.57 $274,018.76

Year 5 $28,783.02 $19,265.19 $9,517.83 $264,500.93

 

 

1999

6.9%

Monthly payment $2,348

 

Year 1 $28,180.12 $17,669.86 $10,510.26 $253,989.74

Year 2 $28,180.12 $16,932.14 $11,247.98 $242,741.76

Year 3 $28,180.12 $16,142.64 $12,037.48 $230,704.28

Year 4 $28,180.12 $15,297.73 $12,882.39 $217,821.89

Year 5 $28,180.12 $14,393.51 $13,786.61 $204,035.28

 

 

2004

6.05%

Monthly Payment $2,262

 

Year 1 $27,151.91 $11,774.76 $15,377.15 $188,657.85

Year 2 $27,151.91 $10,830.37 $16,321.54 $172,336.31

Year 3 $27,151.91 $9,827.99 $17,323.92 $155,012.39

Year 4 $27,151.91 $8,764.04 $18,387.87 $136,624.52

Year 5 $27,151.91 $7,634.74 $19,517.17 $117,107.35

 

 

2009

5.79%

Monthly Payment $2,248

 

Year 1 $26,986.38 $6,159.61 $20,826.77 $96,280.23

Year 2 $26,986.38 $4,936.29 $22,050.09 $74,230.14

Year 3 $26,986.38 $3,641.11 $23,345.27 $50,884.87

Year 4 $26,986.38 $2,269.85 $24,716.53 $26,168.34

Year 5 $26,986.38 $818.05 $26,168.34 $0.00

 

 

So after 25 years for that $400,000 house you've paid a grand total of

$756,997.15. $436,998.91 of that is interest.

 

 

This doesn't even take in account electricity bills, gas bills, taxes and of course maintenance costs. I dare say that the total would be in excess of a million dollars.

[Peach]

Always amazes me how passionate, almost evangelical the "don't buy property, there's a crash coming, doomsayers are"..

[Wooba]

Always amazes me how passionate, almost evangelical the "don't buy property, there's a crash coming, doomsayers are"..

 

As I stated a few postings ago.. I'm not a "crash coming, doomsayer". Those people are often nuts. I'm a realist.

I'm just giving you the facts.. I don't know you so it doesn't make any difference to me if you make a million or lose a million. This thread started with an article saying why renting is sometime better than buying. It was followed by many messages dismissing it because of a long held, almost universal belief (myself included in the past) that real estate is always rock solid investment. I'm just pointing out why I believe the article is onto something.. do with the information what you will.

 

There's a reason why there's a small percentage of the population that's extremely wealthy and getting wealthier. And it's not from doing what 70% of the population is...

[flag of convenience]

Renting won't truly be attractive until landlords allow folk to live in their properties after retirement for free, similar how homeowners do when the mortgage is paid off -- and that aint going to happen.

 

A lot will depend on several factors. Obscene housing prices in our main cities are hardly attractive. When interest rates do rise as they always do, even less so servicing a mortgage. Not to mention declining housing wealth when values decline. Money can be better invested in alternative strategies towards retirement.

 

Given a proper law in place that grants a right of continued tenure and rent control rented property can certainly be an attractive, if even superior option tthan massive expenditure on housing. It works in so many countries.

[flag of convenience]

As I stated a few postings ago.. I'm not a "crash coming, doomsayer". Those people are often nuts. I'm a realist.

I'm just giving you the facts.. I don't know you so it doesn't make any difference to me if you make a million or lose a million. This thread started with an article saying why renting is sometime better than buying. It was followed by many messages dismissing it because of a long held, almost universal belief (myself included in the past) that real estate is always rock solid investment. I'm just pointing out why I believe the article is onto something.. do with the information what you will.

 

There's a reason why there's a small percentage of the population that's extremely wealthy and getting wealthier. And it's not from doing what 70% of the population is...

 

Not denying the value of property is grossly over valued in Australia. 30% seems to be a reasonably agreed figure. I doubt if folk who are in the coming crash scenario belief are nuts? Do you really believe that? It has certainly lost a lot in value in certain regions of Australia. It certainly corrected substantially in Spain, USA and Ireland. (although rising there can history repeat itself?)

 

There is a point where folk will disconnect from housing due to it being out of reach or the sacrifices being just too great. I am waiting to se if new regulations set by banks on lenders for investment property and tougher scrutiny of overseas buyers (purchasing illegally outside of requirements) impacts on the craziness of the situation.

 

I would never say the being a realist is not being in accord with falling house price market. We will certainly need it at some stage and hope for the nations benefit some resemblance of sanity is returned to the market better sooner than later.

[flag of convenience]

Always amazes me how passionate, almost evangelical the "don't buy property, there's a crash coming, doomsayers are"..

 

With increasingly sound reason. Australian property is hardly a good deal.

[flag of convenience]

I was very curious, what would it cost to have bought that hypothetical house in 1989? I did some rough calculations for it based on the 5 year rates posted on the bank of Canada website.

Mortgages here are pretty much always done in 5 year chunks. So even though you take a 25 year amortization, you actually only sign up for 5 years at a time. For year 6 - 10 you re-negotiate a new rate and so on.

I want to be clear this is sort of a worst case scenario. I didn't take into account things like keeping your mortgage payment the same when rates decrease or taking a variable interest rate which historically has been much better than fixed rates - but most people still take fixed rates.

 

 

1989

12.25% interest

Monthly payment $3,358

 

Period Total Paid Interest Principal Balance

Year 1 $40,298.00 $38,118.69 $2,179.31 $317,820.69

Year 2 $40,298.00 $37,843.55 $2,454.45 $315,366.24

Year 3 $40,298.00 $37,533.67 $2,764.33 $312,601.91

Year 4 $40,298.00 $37,184.67 $3,113.33 $309,488.58

Year 5 $40,298.00 $36,791.61 $3,506.39 $305,982.19

 

 

1994

7.25%

Monthly payment $2,398

 

Year 1 $28,783.02 $21,624.53 $7,158.49 $298,823.51

Year 2 $28,783.02 $21,096.13 $7,686.89 $291,136.62

Year 3 $28,783.02 $20,528.73 $8,254.29 $282,882.33

Year 4 $28,783.02 $19,919.45 $8,863.57 $274,018.76

Year 5 $28,783.02 $19,265.19 $9,517.83 $264,500.93

 

 

1999

6.9%

Monthly payment $2,348

 

Year 1 $28,180.12 $17,669.86 $10,510.26 $253,989.74

Year 2 $28,180.12 $16,932.14 $11,247.98 $242,741.76

Year 3 $28,180.12 $16,142.64 $12,037.48 $230,704.28

Year 4 $28,180.12 $15,297.73 $12,882.39 $217,821.89

Year 5 $28,180.12 $14,393.51 $13,786.61 $204,035.28

 

 

2004

6.05%

Monthly Payment $2,262

 

Year 1 $27,151.91 $11,774.76 $15,377.15 $188,657.85

Year 2 $27,151.91 $10,830.37 $16,321.54 $172,336.31

Year 3 $27,151.91 $9,827.99 $17,323.92 $155,012.39

Year 4 $27,151.91 $8,764.04 $18,387.87 $136,624.52

Year 5 $27,151.91 $7,634.74 $19,517.17 $117,107.35

 

 

2009

5.79%

Monthly Payment $2,248

 

Year 1 $26,986.38 $6,159.61 $20,826.77 $96,280.23

Year 2 $26,986.38 $4,936.29 $22,050.09 $74,230.14

Year 3 $26,986.38 $3,641.11 $23,345.27 $50,884.87

Year 4 $26,986.38 $2,269.85 $24,716.53 $26,168.34

Year 5 $26,986.38 $818.05 $26,168.34 $0.00

 

 

So after 25 years for that $400,000 house you've paid a grand total of

$756,997.15. $436,998.91 of that is interest.

 

 

This doesn't even take in account electricity bills, gas bills, taxes and of course maintenance costs. I dare say that the total would be in excess of a million dollars.

 

Yes this is what those overlook that always crow about the virtues of buying over renting.

[Guest]

Exactly. Hopefully that house doesn't need bulldozing after 30 years. Also you will need new kitchen and bathrooms etc by then. Everything else updating too, nobody wants to buy a place 30 years out of date inside at a good price

[flag of convenience]

I am renting in Brisbane until December 2nd just to get my son through school , I am renting a two bed house now in Perth due to husbands job total for both rents $900 a week . I can also tell you Brisbane is not booming , Brisbane government though still spending on infrastructure based on money gained on previous projects ie Lng , but these are at a end . My husband worked FIFO on design in Brisbane we have saved enough money for a deposit for a house and now working in Perth in a good job full time . Truth is though we are not confident in the current economy, work situations and housing market , and therefore will not buy at this time . If you cannot gaurentee work and believe that house prices will fall anyway , why would you buy now ! It would be nice for us to be in our own home,but won't let our heart rule our head .

 

Sound reasoning to me. Increasing numbers are finding less secure working conditions. Besides that the Perth market is sliding downwards. Far more to go as the mining downturn head winds pick up in my view.

 

I suspect the Brisbane market is southern investors (and overseas Chinese) looking for yield(hardly available in Sydney or Melbourne) or in the overseas case a city far cheaper than Sydney or Melbourne to park money.

I don't see how the Brisbane market can continue will rapid price falls in the Bowen Basin as mining cuts back.

 

I'm afraid I see the entire housing debate as part of the casino culture all to obvious in recent decades in this country. Hardly good for longer term planning nor peace of mind in retirement.

[flag of convenience]

Exactly. Hopefully that house doesn't need bulldozing after 30 years. Also you will need new kitchen and bathrooms etc by then. Everything else updating too, nobody wants to buy a place 30 years out of date inside at a good price

 

Funny you say that. We looked at a house a few minutes away on foot the weekend before last. It was built in 1934 and they wanted $1.17 million for it. The inside was very tasteful with a very clever use of colour. (rather appealing)But the outside front clearly showed its vintage and you have to ask yourself who is willing to pay for such a sum for a property of that age? Ten years ago it could have been had for around $600,000 as the records showed.

Only shows me prices have a way to fall and hopefully Perth leads the way into a return to sanity in the housing market.

[Parley]

It is all very well saying the prices are silly, but if people keep paying that then eventually it stops being silly and becomes normal.

[Parley]

Funny you say that. We looked at a house a few minutes away on foot the weekend before last. It was built in 1934 and they wanted $1.17 million for it. The inside was very tasteful with a very clever use of colour. (rather appealing)But the outside front clearly showed its vintage and you have to ask yourself who is willing to pay for such a sum for a property of that age? Ten years ago it could have been had for around $600,000 as the records showed.

Only shows me prices have a way to fall and hopefully Perth leads the way into a return to sanity in the housing market.

 

Obviously it is the land not the house that is where the value is.

[Wooba]

Not denying the value of property is grossly over valued in Australia. 30% seems to be a reasonably agreed figure. I doubt if folk who are in the coming crash scenario belief are nuts? Do you really believe that? It has certainly lost a lot in value in certain regions of Australia. It certainly corrected substantially in Spain, USA and Ireland. (although rising there can history repeat itself?)

 

There is a point where folk will disconnect from housing due to it being out of reach or the sacrifices being just too great. I am waiting to se if new regulations set by banks on lenders for investment property and tougher scrutiny of overseas buyers (purchasing illegally outside of requirements) impacts on the craziness of the situation.

 

I would never say the being a realist is not being in accord with falling house price market. We will certainly need it at some stage and hope for the nations benefit some resemblance of sanity is returned to the market better sooner than later.

By nut I'm referring to people who say the crash is coming. And by crash they mean almost overnight drops of epic proportions. Markets seldom do that, but rather decline at a slow and agonizing pace.

[flag of convenience]

I've seen that Canada graph and it still shows that a house bought for $400,000 the peak of house prices in 1989 would be worth $800,000 in 2015 (at the time the mortgage was coming to an end or paid off).. Still seems a good deal to me. I was reading the same "sky is falling" crap when I bought my first house in the early 2000s, glad I ignored it.

 

Canada and Australia are joined at the hips when it comes to over priced housing and the reasons behind it. Throw New Zealand onto the bonfire for good luck in their over inflated market as well.

[Guest]

Obviously it is the land not the house that is where the value is.

 

See how much rent you can get for an empty block of residential land...

[Parley]

See how much rent you can get for an empty block of residential land...

 

That is irrelevant.

[Parley]

In my street over the weekend a nice old 1950s house on a good size block of 725 sqm sold at auction for $1.2M.

 

Looks okay but wouldn't surprise me if it gets bulldozed to build something new.

 

5 or 6 bidders and well over 100 people at the auction.

[Guest]

Why would they bulldoze and build if all the value is in the land? Chucking 300-400k.Or whatever the build costs down the drain.

[flag of convenience]

By nut I'm referring to people who say the crash is coming. And by crash they mean almost overnight drops of epic proportions. Markets seldom do that, but rather decline at a slow and agonizing pace.

 

Hard to say. I saw prices fall in Australia's North West rather quickly and substantial ones at that. When the market dries up there is little to sustain prices. Fact being no one really knows what could set the crash scenario off. Houses are only worth /what someone is prepared to pay for them.

 

The Chinese overseas investment alone could sustain a weal local market. In fact advocates for that market claim they are making Australians rich by inflating prices. I'd have several answers to that all contrary but it certainly does delay correction. The government has clearly stated housing will be the economic replacement for the loss of the mining boom, at least short term, so we shouldn't be too surprised at the rising prices but I do belief they are increasingly in fear that things have gone far too far and will attempt to reign in further accesses. Too late and too little could well be the catch cry.

 

One would need to be more than a little courageous to invest in the present property market in Australia though.