As at June 2018 capital city house prices experienced their first yearly fall in 6 decades, dropping -1.1%.
With home prices cooling, renting is beginning to look attractive again.
Here we discuss some of the critical reasons to consider when deciding whether to rent or purchase and look which one has worked out better over the long run in Australia.
Pros of Purchasing
There are superior tax advantages for owning your own house over the long run as you don’t pay tax on capital gains in your principal place of residence.
But while home prices have consistently risen over the long term, they may also have periods of weak growth or even fall in value. During the fiscal crisis, home prices in the US dropped by an average of 33.8%. There’s the minimal tax advantage of owning your house if costs fall.
Pros of renting
Renting frees up your savings to make a return elsewhere and based on where these savings are spent, they might have the ability to earn a higher yield than is possible with the money that has been freed up.
Returns offered in term deposits and savings accounts have been decreasing recently since the RBA has cut interest rates. This has made other investments such as stocks and bonds more attractive since bank deposit rates are now under 2% in comparison to a balanced portfolio of stocks and bonds that has historically returned closer to 8 per cent over the long-term.