Number of suburbs where it's cheaper to buy shrinking rapidly
Even as rent prices skyrocket, it’s cheaper to rent than buy in nine out of 10 Australian suburbs, according to new data from CoreLogic.
CoreLogic’s analysis of 3,904 house and unit markets across the country found that for houses, it was cheaper to buy than rent in just 9.1% of suburbs. That’s down from 30.2% this time last year.
For units, it’s cheaper to buy than rent in just 16% of suburbs, a tumble of almost 30 percentage points from last year’s 45.2%, CoreLogic reported.
Houses are cheaper to rent than buy in every suburb in the ACt, Sydney and Melbourne. As of February, it was cheaper to rent a unit than buy one in 100% of suburbs in Hobart, Sydney, regional South Australia and regional Tasmania. And there are several more cities and regional areas where there are very few suburbs left where it’s cheaper to buy than rent.
Home prices outstrip rent rises
“Despite a double-digit surge in rents nationally, exacerbated by a shortage of rental properties, record levels of net overseas migration and more people returning to major cities for work and studies, the proportion of suburbs where it’s cheaper to rent than buy has increased exponentially in the past year,” said CoreLogic research director Tim Lawless. “There is no doubt the cost to service a mortgage compared to rent is keeping people in rental accommodation, adding to the extreme pressure on rental demand at a time when supply levels have not responded.
“While many tenants might see homeownership as a way of breaking out of the rent cycle, it’s just not possible for many because the cost to service a mortgage has become even more onerous in the past year, with the increase in repayments outstripping the increase in rents by some margin,” he said.
National rents have spiked 10.1%, or approximately $225 per month, over the past year. Dwelling values have actually declined 7.9%, knocking nearly $70,000 off the median value of a home. Despite this drop, however, the 325-basis-point jump in the cash rate has added about $774 per month to mortgage repayments, CoreLogic reported.
Suburbs where it’s still cheaper to buy
Of the suburbs analysed by CoreLogic, only 434 markets (11.1%) were cheaper to buy either a house or unit. The suburbs where it was still cheaper to buy than rent were mostly in regional areas and skewed towards mining towns and rural markets. All of the top 10 suburbs where it was cheaper to buy than rent were in Western Australia, in areas associated with the mining and resources sector where rents are typically high relative to housing prices.
“Suburbs where it’s cheaper to buy than rent all have the same thing in common: an affordable median value,” Lawless said. “Whether it’s units or houses, more than nine out of 10 of these suburbs have a median value under $500,000.”
Lawless said that almost 60% of those suburbs were located outside a capital city.
“For capital city suburbs that are cheaper to buy, more than half (52%) are located in Perth,” he said. “While these suburbs might not appeal to everyone, our analysis shows there are opportunities if buyers have the ability and desire to get into the market. These suburbs offer extreme value when compared to suburbs in Sydney, Canberra and Melbourne, where property values might have softened in recent months, but still remain among the most expensive of anywhere in the country.”
Lawless said that the risk – especially in mining-intensive areas – was that housing markets with little economic diversity could be extremely volatile, fluctuating in line with local economic activity.
Suburbs where it’s cheaper to rent than buy skew towards the premium end of capital city markets and popular lifestyle markets where housing values tend to be very high, CoreLogic reported. In each of the top 10 suburbs where it was cheaper to rent than buy, the median house value was at least $3.2 million.
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