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Hot markets emerge where buying beats renting
According to Cotality’s March Monthly Housing Chart Pack, several capital city markets had emerged where servicing a mortgage on a unit was cheaper than paying weekly rent.
The data showed that the average monthly mortgage repayments for units in some capital cities, such as Melbourne, Darwin, and Canberra, were lower than the median rents.
The report found that buyers in Woden Valley in the ACT, Darwin and Palmerston in the Northern Territory, and Melbourne City can save themselves between $25 and more than $300 a month.
Melbourne emerged as the top capital city to buy a unit, saving renters $322 per month, assuming they bought at the median price of $642,431 with a 20 per cent deposit and a 30-year loan at 5.75 per cent.
Despite being the most expensive capital in the country, the Sydney regions of Liverpool, Merrylands, Parramatta, and Auburn were among those with the smallest gap between rents and mortgage repayments, with buyers paying between $20 and $71 more to own their unit than to rent.
Cotality head of research Gerard Burg said the correlation between the two datasets indicated a market in which rental growth significantly outpaced unit values.
“Rents have risen rapidly over the past few years, and we’re seeing that growth pick up again, with the national rental index up 5.5 per cent over the past year and vacancy rates around 1.5 per cent,” Burg said.
“At the same time, some apartment markets have seen additional supply come online, which has helped keep a lid on value growth even as rents continued to rise.”
“When rents rise faster than property values, the cost gap between renting and buying naturally narrows.”
When it comes to the housing market, Burg said buyers were much less likely to find a situation similar to what was occurring in the unit market.
“No capital cities areas showed houses being cheaper to pay down a mortgage relative to rental costs, though the smallest differences are in Darwin, Hobart and the fringes of Adelaide and Perth.”
The data found that Darwin and Palmerston were the markets where house rents were the closest to mortgage repayments, with a difference of around $40 per month.
While buyers in Darwin were relatively close to even, there was a significant jump to the next-closest market, with Tasmanian buyers in Brighton, Hobart’s north-west, and Sorell paying between $220 and $310 per month more to own a home.
Burg said that despite the shrinking gap between rents and mortgages in some markets, most still favoured renting, given the broader costs of ownership.
“Even where mortgage repayments appear similar to rents, buyers still need to factor in additional costs such as deposits, rates, insurance, body corporate fees and maintenance.”
“The financial downside to renting is that renters don’t see the wealth benefits most home owners experience, especially over the past five years, where Australian home values have surged almost 44 per cent higher, adding approximately $280,000 to the median dwelling value.”
“That competition tends to support stronger value growth at the lower end of the market while higher price brackets are seeing more moderate conditions,” Burg concluded.