Research Article for Friends, Clients and Associates of LJ Gilland Real Estate Pty Ltd
Queensland and NSW dominate the RP Data suburb locations where it is cheaper to buy than rent
By Jonathan Chancellor
Wednesday, 29 August 2012
There are between 238 and 1,759 suburbs across Australia where it’s potentially cheaper to buy than rent, according to RP Data research.
Queensland and NSW dominate the comprehensive list, as do regions over capital city suburbs.
It’s the outcome of home values being 5.9% lower than their previous highs and rental rates having continued to increase across most regions of the country.
"With capital city dwelling values almost 6% lower than when they peaked back in October 2010, discounted variable mortgage rates 100 basis points lower from their 2011 peak and fixed mortgage rates 160 basis points lower, many renters and prospective home buyers are likely to be doing their sums to work out whether it is better for them to pay a mortgage or pay a landlord," Tim Lawless, RP Data national research director, says.
Lawless notes that lower interest rates will not only further improve home loan affordability but also potentially attract more buyers into the housing market.
"For those that are renting, any further cuts to mortgage rates will make the cost of a mortgage more affordable and will further improve the relative comparison between the cost of buying and the cost of renting," he says.
The analysis looks at the results across four scenarios, specifically:
1. Servicing a principal and interest loan on a variable mortgage rate;
2. Servicing an interest only loan on a variable mortgage rate;
3. Servicing a principal and interest loan on a three year fixed mortgage rate; and
4. Servicing an interest only loan on a three year fixed mortgage rate
Lawless says the benefit of using these different scenarios is that it highlights to potential purchasers the different options that are available when contemplating purchasing a property and taking on a mortgage.
"It also highlights the differences in results when choosing different types of loan products."
The report concluded that it is currently cheaper to buy than rent:
1. Servicing a principal and interest loan on a variable mortgage rate in 238 suburbs;
2. Servicing an interest-only loan on a variable mortgage rate in 1,320 suburbs;
3. Servicing a principal and interest loan on a three year fixed mortgage rate in 328 suburbs; and
4. Servicing an interest-only loan on a three year fixed mortgage rate in 1,759 suburbs.
RP Data stressed it was important to note that interest only loans may not be appropriate for all borrowers because of the risks associated with the non‐repayment of the loan principal during the interest only period.
The analysis included seven key assumptions:
1. A loan to value ratio (LVR) of 90% which means that the purchaser is borrowing 90% of the value of the home (i.e. they have a 10% deposit).
2. A variable mortgage rate of 6.15% per annum.
3. A three year fixed mortgage rate of 5.9% per annum.
4. The loan period is 30 years.
5. The repayment schedule is monthly.
6. The principal is calculated based on the suburb’s median house and unit value as at June 2012.
7. Rental costs are based on the median weekly advertised rental rate across the suburb over the past 12
months to June 2012
Lawless also notes the analysis did not provide consideration for costs associated with either home ownership or renting such as:
2. Council rates
4. Water and sewerage
5. Land tax
6. Body corporate levies
7. Stamp duty
8. Legal and conveyancing fees
For the full list of all suburbs, visit RP Data’s website.
A first-quarter survey of homebuyers and sellers done by HomeGain.com, a real estate services website, revealed that 76 percent of homeowners believe their home is worth more than the list price recommended by their real estate agent.
Homebuyers usually have a better grasp of current market value in the area where they’re looking to buy than do sellers who own and live there. Buyers look at a lot of new listings. They make offers, know what sells quickly and for how much, and what doesn’t and why. Homebuyers still think sellers are overpricing their homes.
Your home is worth what a buyer will pay for it given current market conditions. This may not be the same as your opinion of what your home will sell for, or what you hope it’s worth. Relying on emotion rather than logic when selecting a list price can lead to disappointing results.
The prime opportunity for selling a home is when it’s new on the market. This is when it is most marketable. Buyers wait for the new listings. Usually, listings receive the most showings and have the busiest open houses during the first couple of weeks they are on the market.
This is the opportunity to show your house off to advantage with a list price that attracts buyers’ attention. Listings that sell today are priced right for the market. Buyers need to feel comfortable that they are getting a good deal.
Buyers won’t overpay if they feel home prices are still declining, and in some areas of the country, they still are. In areas of strong sales, buyers may shy away from multiple-offer situations if they feel the recovery is fragile and that prices may slide further before stabilizing. Even in areas where home sales have been strong in the first half of 2012, local practitioners wonder how long the uptick will last.
HOUSE HUNTING TIP: When selecting a list price, it helps to understand how real estate agents and appraisers establish an expected selling price or price range for your home. They research the recent listing inventory for homes similar to yours that sold. The most recent sales give the best indication of the direction of the market.
They analyze these comparable sales giving more value to your home for attributes that it has that the comparables don’t, like a remodeled kitchen. Value is subtracted from your home for features it lacks when compared to the sold comparables, like an easily accessible, level backyard.
It’s difficult for sellers to step back and take an attitude of detached interest in their home. But it’s essential to do so if you want to sell successfully in this market. For example, your home could actually sell for less, not more, than a comparable sale because you added a swimming pool in an area where most homebuyers would rather have a yard with a generous lawn.
If the comparable sale information suggests that the value of homes like yours is declining, select a list price that undercuts the competition to drive buyers — and hopefully offers — to your home. You can take a more aggressive stance on pricing if the comparables show that prices are moving up.
If there is high demand for homes like yours, you may receive more than one offer. But don’t list too high. It’s better to stay in the range shown by the comparables and expose the house to the market before accepting offers. The market will drive the price up if it’s warranted.
THE CLOSING: Don’t rely on rumors circulating in the neighborhood about how high a home sold. Prices tend to get inflated when passed from one person to another. Select your list price based on hard facts.
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