Gotti has an interesting take from High-rise Harry Triguboff this morning:
In the last two months it has become apparent that the current generation of first home buyers is different from the generations that have dominated post-war Australia.
The lower interest rates are not causing them to rush into new dwellings.
Australia’s largest apartment builder, Meriton’s Harry Triguboff, says that he has never experienced anything like it and admits that he has been caught by surprise, as have many other builders and developers.
In the past, when interest rates were low and housing affordability increased first homebuyers moved into the market. Now Meriton’s research is discovering that most will not buy a dwelling until the repayments are less than what they are paying in rent. And that first home buyer view covers most forms of dwellings.
For example, in outer suburbs house prices are usually lower than city apartments but outer suburban rents are also lower. If Triguboff and Meriton are right it means that as the mining investment boom subsides next year we are going to be looking at much lower interest rates.
In Triguboff’s view reducing interests rates by one quarter or half a per cent will have no effect on first home buyers. It may boost the spending of consumers with mortgages but it will also cut back what retirees can spend. In Triguboff’s view it will take a 1 per cent fall in rates to take repayments on mortgage loans below the rent levels – in other words, to where buying the first home is cash positive.
This will be no surprise to MB readers, which are dominated by the 30-50 age bracket. There is one more possibility. Canberra wades in with another First Home Buyer Grant and turns this good sense into another round of panic buying. As the mining boom unwinds, such stupidity is possible.
As an aside, RP Data’s
revealed that it was cheaper to rent than buy in 93% of locations around Australia (see below chart and table). Buy versus Rent Report for October
Moreover, RP Data’s report underscored the financial benefits of renting, since it assumed the buyer had a 10% deposit (in itself a financial cost) and did not include a raft of costs associated with home ownership, including stamp duties on the purchase, ongoing maintenance costs, body corporate fees, and rates.
Based on RP Data’s analysis, Triguboff’s claim that a 1% cut in interest rates would be enough to take repayments on mortgage loans below rent levels looks shaky.