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New RBA research suggests it’s 30 per cent cheaper to buy than rent a home

 

DESPITE the constant talk of housing unaffordability, two Reserve Bank researchers say houses in Australia are really 30 per cent undervalued - the widest gap in 30 years.

 

It meant current house buying price expectations are not “irrational” or “unusual”, the research by RBA senior research manager Peter Tulip and co-author Ryan Fox found, according to Fairfax Media.

 

“We find that owning a house costs 30 per cent less than renting,” Dr Tulip told the Australian Conference of Economists in Brisbane yesterday.

 

“That is, houses are 30 per cent undervalued.”

 

On an annual basis, “you can either pay 2.7 per cent of the value of the property to buy, or you can pay 3.9 per cent of the value to rent,” Dr Tulip said, according to Fairfax Media.

 

“The undervaluation is 30 per cent.

 

“Under our assumptions, owning a home is now more attractive, relative to renting, than it has been at any time in the past 30 years.”

 

The change in the past year is partly the result of this year’s two interest rate cuts, which have brought the typical discounted mortgage rate to about 4.6 per cent.

 

Mr Tulip delivered the preliminary findings at the Australian Conference of Economists in Brisbane yesterday, emphasising that they should be attributed to him and not the central bank.

 

The calculations were based on recent lower mortgage prices and signals from the bond market that mortgage rates will remain in the vicinity of their present lows for another decade.

 

 
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