If you can believe what is being reported in the West Australian then sometime in the last two months the average monthly rent has risen up to where it now equals the average monthly mortgage repayment. This was based on the average weekly rent for Perth now being at $450.00 per week.
The thrust of the article was that with rents now costing as much as a mortgage then we are likely to start to see more house sales happening and a general up-tick in the housing market.
Hmmmm . . .
I have a couple of issues with this.
Issue Number One
The last time I saw an average house price for Perth, about two months ago, I am very sure it was around the $450,000 mark. Based on a 20 percent deposit for a mortgage taken over 30 years the weekly repayments for this would be $557.
So do you see my issue here? Based on this the average rent is a long way away from the average mortgage. My working out for the average mortgage comes up with $557 per week which is $100 more per week than the $450 for the average rent.
The ‘old’ rule of thumb for renting—back when I was looking to getting into an investment property in the mid-80s—used to be that, in a healthy market for the same type of house in the same location, rent should be about 50 to 60 percent of the cost of a mortgage (based on 20 percent deposit paid back over 30 years). So, using the higher end of that range, the average rent should be around $330.
This means that at $450 per week the average rent it is high—but it is still $100 per week cheaper than a mortgage.
My Second Issue
As I noted earlier, the article where I read this tried to put a positive spin on it saying that as rents are now just as expensive as getting into an ‘average’ mortgage then this will likely get more people to take up mortgages (i.e., buy houses).
There is another way to look at this; a more realistic way.
If people are having to pay more out in rent because rents are higher than they should be in a healthy market, then their ability to save up a 20 percent deposit for a mortgage is under more pressure.
Add to this that the cost of living (power, water, gas, registration, insurance, petrol, food, etc.,) has increased by around 30 percent over the last five years alone. On top of this also consider the general global economic ‘doom’ that is not expected to sort itself out anytime in the near future. Plus you have the experts saying that the days of property values increasing by double digit percentages every year are gone. Then, to my way of thinking anyway, I see it as becoming less likely that people are going to take the dive into a 30 year mortgage.