Does Renting Now Make Sense?

Question


Hi Scott,

I would like your thoughts on something that is bothering me. Forecasters think that house prices are set to fall at least 5% over the next year. If you buy a million-dollar house now, in a year you will have paid 4% stamp duty upfront and 4% interest in servicing — and suffered a 5% drop in value. That’s 13% gone, wiping out over half of a 20% deposit! Isn’t renting at a 3% to 4% yield better? Should there be a ‘Barefoot Warning’ that rent money sometimes is not wasted?

Dee

Scott's Answer


Hi Dee,

My warnings for first home buyers aren’t about falling property prices, but rising interest rates.

I devoted an entire chapter to it in my book: it’s called ‘The Curious Case of the Postcode Povvos’ … first home buyers who live in cafe suburbs … but can’t afford a coffee because they’re a slave to their mortgage.

In that regard, I totally agree that rent money is not dead money if you can’t afford to comfortably service a mortgage and have a commonsense buffer for higher interest rates (which will come at some stage in the next decade).

My view?

With falling prices, there is absolutely no rush to buy your first home. Yet don’t get paralysis by analysis. You’ll pay stamp duty and interest whenever you decide to buy. So, once you find a home you love, that you can afford, and that you will live in for at least a decade, buy it.

Scott