Should I Buy House Now or Stay Rented for 8 More Months

LMichael8899 on 20/09/2020 - 12:16
Last edited 20/09/2020 - 13:17 by 1 other user

Hello Everyone,

I have saved some $80K for house deposit. I am planning to buy my first house for around $650K.

As I have seen many news that there is a good chance that house prices will come down in Sydney.

My question is:

1) I am currently staying in rented unit and pay $2000 per month.

2) Example: If I wait for say 8 months so that prices will come down and assuming there is reduction which is around 20K than today's price.

3) But for next 8 months, I will be paying rent total approx 16K which is going to my unit Owners mortgage.

So is it good to Buy house now and start paying my mortgage or Should I continue renting and wait for price corrections?

I am totally confused, please help

Home & Garden

Comments

  • dcep on 20/09/2020 - 12:22
    +2

    factor in LMI for <20% deposit , and assess whether you can hit 20% in 8 months through more savings/price drop

    • jimbobaus on 20/09/2020 - 12:33
      +1

      or get a no LMI loan from one of the 18 banks that can offer it (first home buyers scheme)

      • Existenz on 21/09/2020 - 16:49

        That only applies if OP earns under a certain amount and the house price is a certain amount too. Needs some research.

        • jimbobaus on 21/09/2020 - 16:50

          True but 650k in Sydney qualifies if their income is within the threshold.

  • lubos on 20/09/2020 - 12:52
    +1

    Is there a house for 650k you like to buy now? Don't buy for the sake of buying…

    80K can be invested in some conservative ASX fund to earn at least some return on capital. Keeping 80K in cash is becoming unusual due to government overspending which has caused inflation of investments and saved real-estate market from crash. There is no reason to think this overspending won't continue.

    • Michael8899 on 20/09/2020 - 13:33
      +6

      Thanks, but I don't want to risk my savings by putting into ASX, my personal thinking is all the stock markets across world will go down as profits of majority of the companies are affected.
      I know lot of people don't agree on this :)

      • EightImmortals on 20/09/2020 - 14:04
        +2

        I think you are right as the both the stock markets and real estate are in a huge bubble with the stock market gains over the last few months being artificially inflated by the U.S. fed and other local central banksters. If you had the cash and didn't care about property values (just wanted somewhere to live) I'd say go for it. Also if you are very confident in regards to your sources of income it might work out, if not then I'd be careful.

        I've found this (aussie) guy to be quite informative.

        http://digitalfinanceanalytics.com/blog/author/mnorthDFABlog…

      • lubos on 20/09/2020 - 15:28
        +2

        my personal thinking is all the stock markets across world will go down

        This is major financial mistake people keep making for decades now.

        Everybody complains about how it's impossible to save up for deposit because real-estate is rising faster than they can save up. If they would be investing in ASX until their porfolio is worth 20% of the house, then they could easily convert and buy the house.

        Let me give you some math behind this. Over the last 30 years, the historical ASX return is 9.5% per year. In order to get to $200,000 deposit in 10 years, you need to invest $1,000 per month. That's it.

        If you save $1,000 per month in your bank account earning 2% interest annually - you end up saving after 10 years only $130,000. That's $70,000 difference.

        • bobbified on 20/09/2020 - 17:01

          Over the last 30 years, the historical ASX return is 9.5% per year

          And as anyone who has any idea about investments would know, past performance is not an indicator of future performance.

          • lubos on 20/09/2020 - 17:57
            +1

            @bobbified: Thank you but that's not the point.

            If you are saving for the house deposit, you should hedge yourself against real-estate getting more expensive by the time you actually can buy. And the best way to hedge yourself is to invest in ASX. And if you want to be really safe, invest in real estate ETF on ASX.

            This way if real-estate prices double in 10 years while you are saving for deposit, your invested deposit doubles too. You are not stressing over getting behind because you are hedged.

            Look at OP with $80k in the bank stressing over whether real-estate goes up or down and how to time it. You might as well hedge yourself and stop stressing. Then you can actually wait for the right house that you really want rather than rushing into the market and buying the first crappy house you can afford - then having regrets.

    • markathome on 20/09/2020 - 15:20
      +2

      Lubos is largely correct but he may not be correct about keeping $80k in cash being unusual. If you take the United States $12 trillion is on deposit, $40 trillion in bonds and $30 trillion in stocks. Of that bond market, roughly 36% are treasury bonds. So for every $1 invested in the stock market, $1 is earning interest akin to money kept in the bank (either through treasury bonds or by being on deposit at an institution).

      Sources:

      https://en.wikipedia.org/wiki/Bond_market
      https://www.fool.com/knowledge-center/5-bond-market-facts-yo… (wrong value for stocks)
      https://fred.stlouisfed.org/series/WSAVNS

      Edit: I still think I'm correct, $80k is often held in cash, but Motley Fool is incorrect US stocks are worth at least $30 trillion as that is the market cap for the S&P500.

      • EightImmortals on 21/09/2020 - 17:34

        Is that what the stocks are 'worth' or what they are valued at? The fed has been artificially propping up and raising prices for a while not. John Titus from Best Evidence does some good in depth work on this. To me it look like a house of cards ready to tumble.

    • whooah1979 on 21/09/2020 - 09:37
      +1

      The SPX will dump along with the XJO after the US election. That is the best time to grab a bargain or two.

      • EightImmortals on 21/09/2020 - 17:36

        I think I agree. It seems they are calming the years storm over the last couple of weeks, even the plandemic seems to be turning around (for now) and suspicious me thinks it's probably just a ploy until 'merikas next top president is selected. Then things will go to level 2.

  • DannyC on 20/09/2020 - 13:37
    +1

    As some have said, don't buy for the sake of buying….

    So is it good to Buy house now and start paying my mortgage or Should I continue renting and wait for price corrections?

    Yes it might look attractive with record low interest rates and a slight downturn in the market. The banks have also adjusted their lending criteria, so you really need to think, is this a good time for your current situation? It is the Australian dream to own your own house after all, but I would not bank on the housing market crashing.

    • Michael8899 on 20/09/2020 - 13:57

      Yes, I have been planning to buy from last 2 years, saving up for deposit. And I checked my financials, I can afford the monthly loan repayments. It's almost coming up to my rent per month.
      I also noted that there will be some additional expenditures like council fees, water , and some repairs as I am buying a established house.

      I am just confused, to buy it now and pay my mortgage or differ the purchase for few more months and keep paying rent.

    • Michael8899 on 20/09/2020 - 14:00

      Thanks for the inputs, yes 100% agree with you. We must be careful to see that we don't end up in a situation, where affording the repayments becomes difficult.

      • DannyC on 20/09/2020 - 14:05
        +1

        I think spend a bit of time looking at what you want in a home and then make a decision based on what you can afford. Also to take advantage of any Government grants etc. It is one of the biggest purchases you can make in your lifetime so make sure you find something that ticks most of the boxes for you in the present and what you envision into the future. Good luck n happy hunting!

        • Michael8899 on 21/09/2020 - 12:22

          Thank you so much

        • Michael8899 on 21/09/2020 - 12:25

          Yes, I tried couple of house inspections, and its like out of check-lists, only 60% or so will meet.

          As my budget is limited, so are the options.

          And of-course all the check boxes wont get ticked, but atleast the majority ones is what I am looking for.

          thanks again

      • CheapskateQueen on 20/09/2020 - 22:02
        +2

        you shouldn't make the decision based on a few months rent.

        finding a place you want to buy takes a lot of time. so even if you decide today you want to buy, you're still months and months away from actually buying.

  • garetz on 20/09/2020 - 14:05
    -7

    Just remember in the next 2-5 years its very likely interest rates will go back up to 9-10%, so factor that into your consideration.

    • StonedWizard on 20/09/2020 - 14:17

      @rates will never go up that high. Can you imagine the carnage it would create in Sydney and Melbourne housing markets?

      I highly doubt we’ll ever see rates to up past 3%.

      • garetz on 20/09/2020 - 14:39
        -3

        You keep telling yourself that, just like they say property prices never go down. Look at the interest rates in the last 25 years, noone imagines that rates can skyrocket, but they can and they will, its just a matter of time.

        • StonedWizard on 20/09/2020 - 16:22

          @garetz - Good property e.g. worst house on the best street will always hold it's own. Yes, the market may dip but a good place will dip less than the overall market. I'm not saying rates won't go down, but they won't go to 10%.

          Majority of the country live in Vic and NSW. Rates going up by that much would tank our entire housing market.

          Covid is around for another 1 - 2 years till we get a vaccine. You're talking about rates going from 2.5% (even less) to 8% within a span of 3 years. That would mean our economy would be booming like there's no tomorrow for the cash rate to be that.

    • Donaldhump on 20/09/2020 - 15:17

      If it’s likley in your mind, you would bet on this. So are you willing to wager 5k on this, if so I want in. In fact any amount of money you have I’m keen. Seriously this is a great investment for me, I’ll cover all legal and holding fees.

    • whooah1979 on 21/09/2020 - 09:47

      The central banks would rather have higher inflation than higher interest. They will allow inflation to play around a bit in hope that the financial market doesn’t crash.

  • MagicMushroom on 20/09/2020 - 14:27
    +1

    If you decide to continue with renting, ask for rent reduction.

  • FrugalNotStingy on 20/09/2020 - 14:52
    +5

    There is no right time to buy a house. The right time is when you can afford it. Don’t wait for house prices to go down, What if it never goes down but go up instead? Will you be able to catch up?

    • Euphemistic on 22/09/2020 - 12:34

      This. If some ‘expert’ says house prices are likely to drop, another expert will be along shortly to say they’ll rise soon.

      Start looking now and when you find the house you want, buy it. Don’t buy something for the sake of it, don’t hold off waiting for some prediction to come true.

      Once you are in the market, price rises and falls only mean something if you get in or out of the market. If you stay in the market the extra rise or fall will be made up in the next purchase.

  • Zippy135 on 20/09/2020 - 15:24
    +1

    Agree with FrugalNotStingy, there’s no right time to buy a house. Do your research of where you want to live, what you are looking for and how much you are willing to pay (and can afford). Once you start looking at places, when the right one comes, I’d buy it. It may take you a few months or a year to find the right place.
    Prices may come down slightly or they may not. If they do and you plan to live in it for a while, it won’t matter as eventually (we’ll generally) prices will come back up. At least you’ll be living in your own place.

  • trustnoone on 20/09/2020 - 17:25

    This is a guess, and obviously if it was easy to find out I think people would be jumping on it already so take this with a grain of salt. I think people "think" the housing market is going down because the rental market has dropped plus covid and people hearing about losing jobs. But government has provided a lot of ways to help people (higher payment in centrelink, banks freezing for a few months) plus many home owners who rent places were already doing very well from rent alone.

    Mixed with people like yourself who feel like now is a good time to buy, a lot of people are coming out trying to buy right now or worried about missing out that I heard housing prices are actually selling at equal to expectation and higher then listed by $20k, especially if you look for the typical 2 bedroom (<$500k range).

    You may be okay if you go higher then that, as a lot of first home buyers are looking for their "starter home", a mix of affordability and space. I'd say after January may be better, depending on covid and how things are going (Jan to Aug next year), but honestly who really knows.

    In saying that, if you have a house you want to buy right now it may be worth it to go for it as end of the day the risk may be you could've bought it for $20k less, but in 10 years time, you may get back that $20k when you go to sell fairly easily.

  • Moneyinthebank on 20/09/2020 - 22:04

    I'll probably just go to King's Court with the money saved. Feel like a King

  • yellowfever on 20/09/2020 - 22:37
    +3

    OP add yourself to the group on FB called "Shared Experiences reading the Barefoot Investor Book"

    Ask your question there and many people will give you solid advice.. it is an Australian page

    https://www.facebook.com/groups/BFISharedExperiences/?ref=sh…

    • Michael8899 on 21/09/2020 - 12:20
      +1

      Awesome, thank you so much. this is very helpful information.

      • yellowfever on 21/09/2020 - 21:29

        I saw your post on the FB page. Great work. Hope you get some insights and get yourself to a calculated decision. In the end there is not one certain choice.

        This is my opinion..
        Although I'm not familiar with Sydney suburbs, there is alot of people that will race out and out pay you when and IF the market drops. Like one of the commenters on FB said, when everyone decides to buy at once it will bring pricing up again.
        Your competition will have deeper pockets to throw and more flexibility in out paying you. Particularly in your sub $600K range. Particularly mums and dads, and every other investor waiting for the "drop", which may or may never come.

        Consider where you stand against many others, you'd be surprised there are many people out there flourished with $$$ ready to pounce much heavier than you can. That is something to keep in mind.

        Getting in now could give you the upper hand in terms of not being in heavy competition later.
        However, do the calcs. As the other important factor is LMI or waiting to save at least 20%.

  • Logical on 21/09/2020 - 00:23
    +2

    If you find a property that you like and can get finance for it then go for it! You may find that the right property for you only becomes available in a few months anyway! Start looking and inspecting now. Get to know what to look out for when buying. Make sure you know all the costs associated with the purchase eg stamp duty, conveyancing fees etc

    • smhto on 21/09/2020 - 08:29
      +1

      Absolutely Logical

  • smhto on 21/09/2020 - 08:27
    +1

    If you find the right house at the right price in the right suburb, then DO IT.

  • afah0447 on 21/09/2020 - 12:40
    +1

    Wait till you have 20 per cent deposit. Or if you are eligible apply for the First Home Loan Deposit Scheme. Only need 5 per cent down.

    https://www.nhfic.gov.au/what-we-do/fhlds/

    • Michael8899 on 21/09/2020 - 12:53

      thanks, I am not eligible for this scheme.

  • OzHunterNSW on 21/09/2020 - 14:46

    Houses in 8 months could be reduced far more than your 16k.

    I suggest spend the 8 months researching and asking for the advice from "professional" people.

  • LFO on 21/09/2020 - 18:21
    +1

    I will be paying rent total approx 16K which is going to my unit Owners mortgage

    That is a common "distraction" in the world of finance.
    Rent goes to PAY FOR YOUR accommodation, regardless if it pays someone mortgage, medicines for a sick elderly parent, booze & women, cocaine addiction or whatever.

    It is irrelevant the destination. You get 8 peaceful, stress-free, months of your life.
    8 months rent, not buying a house, not having a mortgage, means more saving for your deposit. Better picking time for your future home

    Also brings a maybe / maybe-not fluctuation on property prices OR your own needs and expectations.
    How about if THE dream job, the offer you cannot resist pops up, but 3000Km away?

    Are you happy and satisfied where you are? Carry on.

    Hate every second. Move now.

  • haimrevolution on 21/09/2020 - 22:09
    +1

    Here’s some perspective:

    Buy now:

    pay low low interest rates and lock in at the bottom of the ladder.

    Possibly get first home buyers plus some covid grants

    Get in now (generally market goes in the upwards direction) yes can buy in the dip but that is a gamble

    Buy later:

    Homes could go up

    Rates could go up

    Your current earnings of interest on deposit are abysmal (2.5% at the very best if lucky)

    Support for covid and other things end

    To me this really is a no brainer

    • Michael8899 on 21/09/2020 - 22:20

      thanks mate,

      I am not eligible for first home grants.

      And some of the covid grants are only for newly built houses, (which in my case are not affordable).

      So the suburbs in which I am looking are only having old houses (20+yrs) within my budget.

      I am happy to go for old house, rather then buying something big/new and getting into financial stress later as interest rates goes up

  • bigbadboogieman on 27/09/2020 - 09:56

    I know a close relative who was in the same situation as yourself. My advice start looking now. It will be roughly 4+ months by the time you settle and be prepared to suck it in for a couple of years as you will be tight on funds.

    The facts:
    - Search and research to find an established home in the budget took more than 3/4 months.
    - There was almost nothing in the price range in established homes with land but eventually they got lucky.
    - Penrith NSW LGA - 10 mins walk to a "non-express" route train station
    - Started off with ~$75K
    - Purchase Price 610K
    - 10.2% Deposit with $13.1K LMI - capitalised
    - Interest 2.19% fixed 2 years
    - Pre-purchase inspections roughly~$1K - Solicitor ~$1.7K - No Stamp Duty first home owner
    - Deceased Estate - Original construction date 1950s but reasonably renovated interiors - Property has a smaller (not so old) Granny flat which can be rented.
    - Land size ~ 730 SQM - Medium to low socio-economic area
    - Immediate Renovation needs:
    - Storm water drainage system under the property and on surrounding land ~ $10K
    - Other plumbing ~ 1K - Bathroom leaks, etc.
    - Electrical work ~ 3.5K - Installation of downlights - Clearing of DYI (jumbled) dangerous) wiring and Installation of new/proper external lighting
    - Fixing up Inside Flooring ~2K
    - Built-in Wardrobes ~ 1.3K
    - Removal of vegetation including a large tree ~ 1.5K
    - Gardening tools ~$1K moving if from an apartment originally.

    Overall they are happy but they invested alot of money and are now heavily geared (credit card interest free purchase period promo for like a year)

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