Time To Stop Renting?

Renting a property can make sense in certain situations.

However, there are plenty of reasons why now is a great time to buy - so perhaps it's time to make the move.

There have been a lot of significant changes in the economy and the property market in recent months. Many of these changes are encouraging for those seeking to exit the rental market and buy their own home, and means that now could well be the right time to buy.

Interest Rates

The most striking trend in recent months has been the “global financial crisis”. This has had a significant impact on two areas of concern to potential home buyers: job security and interest rates.

Some business sectors are contracting and reducing their employees - the financial services sector in particular. But many other sectors remain largely unaffected, and job security remains strong.

For the majority of people, then, job security is not a major concern. Indeed, the current crisis offers opportunity for many because of the significant reduction in interest rates.

The Reserve Bank has reduced the cash rate four times since September 2008, from 7.25% to 4.25%. The rate hasn’t been this low since May 2002. Lenders have passed on most of these decreases to their home loan rates. Further, many economists are forecasting that interest rates will continue to fall to record lows during 2009.

First Home Buyers Boost

The Government has recently announced a $10.4 billion Economic Security Strategy. Part of the package offers increased help for Australians wanting to buy their first home.

The First Home Owners Boost (“FHOB”) doubles the existing First Home Owners Grant (“FHOG”) on existing homes to $14,000 and triples the existing grant for newly built homes to $21,000. This is a time limited measure, running until 30 June 2009. Further, some State governments have offered additional incentives to first time buyers.

“Now could be a good time to invest in some property.”This means that now is a great time to purchase your first home – low interest rates and significant cash incentives.

But what about the rental market? Is it still as attractive to remain as a renter?

Vacancies and Rentals

According to the Real Estate Institute of Australia’s latest Market Facts report, the industry vacancy rate benchmark is considered to be a value of 3.0%. Vacancy rates lower than 3.0% indicate strong demand for rental accommodation.

Currently “vacancy rates remain at record lows in most capital cities around Australia” with average rates sitting around 1.6%.

This means that demand for rental accommodation remains high, which in turn has led to increased rents. The REIA reports that “high demand for rental properties ensures that median rents continue to rise in most capital cities.”

Median rents are reported to have increased by 10% and more in most capital cities over the past 12 months.

This means that the economic case for buying rather than renting has become stronger in recent months.

House Prices

At the same time, the property sales market has been weak in recent months with median house prices decreasing in seven of the eight capital cities over the most recent quarter.

The largest decline has been in Canberra where the median house price decreased 7.0%. Only Darwin experienced any increase in median house price, and this was just 0.6% over the quarter.

Whilst no-one can be certain whether the market is “at the bottom”, there is increasing evidence that the next 12 months will see an increase in house prices as demand from first home buyers starts to reignite the bottom of the market.

This means that, from a price perspective, now would be a good time to buy a property as prices are weak, but look likely to start increasing within the next twelve months.

Summary

There are plenty of reasons for people to move into property ownership. Low interest rates, weak property prices, government cash incentives plus increasing rents are all factors that make the “buy” decision an attractive proposition.