Should You Buy or Rent?
The decision to purchase a home or rent requires looking at the bigger picture. It’s important to ensure you earn enough to not only cover your mortgage repayments, but insurances, maintenance, interest rate increases and other expenses, should you choose to buy.
Is buying really the best thing to do in the current economic conditions? There are certain market indicators that point to renting being the more prudent option at the moment, especially in certain suburbs. The spike in home prices in certain cities mean that if you do purchase a home now, you might be paying more than you should. With rates so low, you may be able to secure a larger loan for the moment, but what happens when rates go up?
Ultimately, to make the best decision you need to get out there and see what deals are available, do the math and account for rate increases along with other expenses. You may find that renting and saving is a better option at the moment.
Economic Struggle and Interest Rates
The economic downturn, felt worldwide, has had Australia scrambling to keep the economy from stagnating or stalling altogether. The interest rates have been shaved down by two percentage points in the last couple of years, but it hasn’t had the full affect desired as of yet. The Reserve Bank of Australia is more limited in ability to help the economy as much as similar entities in Japan, UK and the US. They are able to bring down the interest rates, however, in an attempt to stimulate the economy and increase consumer confidence. The lowered interest rates have brought in more investors rather than allowing first time home buyers get in to the market.
Some say that the steady rise in home prices is causing a bubble, in that the prices can only go so high before the housing market burst. If and when interest rates start to rise, the housing market and those who overextended themselves may find themselves in a bad financial situation.
Less is More
If you do have the mindset to purchase a home, no matter what, then think in terms of less is more. Finding the best deal you can to keep loan amounts down might mean getting a home that is smaller but still be a quality home, or in a less inflated area (metro vs country). It will limit the loss you might have to take if the housing market fails. Overextending yourself and avoiding expensive home purchases is the sensible thing to do.
The lowered interest rates have brought about an unexpected problem for families trying to purchase a moderately priced home. Investors have grabbed up a lot of loans and are eating up all of the more affordable homes on the market. They then use them for tax deduction purposes and then send them back out on the market at an over-inflated price. This might be the time to rent the home you like rather than overpaying for a cheap house and taking too much risk on an expensive one. One of the keys to a simple living is reducing financial stress.
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