Rent or Buy- Our conclusion

Rent or Buy- Our conclusion

There are arguments on both sides of the coin with the RBA of the opinion that renters are likely to be better off than property owners over the next 7 years based on long-term assumptions. RBA’s current assessment that the Australian property market is 19% overvalued compared to renting is their reason why.

Should you be looking at buying property in the near future be aware that leverage and poor diversification make home ownership a little riskier than most of us expect. One of the primary benefits of property mortgage has also been the forced savings it encourages however now it’s much easier and more affordable to save as there are now have more options to save than in the past. A recent study in the US found renting to be the superior investment strategy.

Other analysts still believe over time home ownership is the way to go and Sydney has emerged as the financially superior strategy in all but four years or housing price comparisons (1989-90 when house prices had peaked and interest rates were very high) and again in 2003-04

But we need to remember that past financial performance is not a guarantee of future performance.

One of the factors to be aware of relates to the growth of housing prices in the major capitals as housing prices have increased more than threefold since 1983, and more than fourfold in Sydney and Melbourne, yet we have to wonder if that is sustainable in the distant future or will prices stagnant for a number of years than making renting the most attractive option.

It is almost impossible to know exactly, in advance, what those relative costs and returns will be for either buying or should you rent and invest your money elsewhere. With the benefit of hindsight, however, it is possible to look back and see what the returns to renting and buying have been in the past. Ideally it is your call, what works for you and your requirements but the argument continues whether renting or buying is the way to go.