Reserve Bank of Australia Says...

Renting Is better Than Home Ownership

This is strange. The RBA has done some sums and it thinks one would be better off renting than owning if house prices go up anything less than 2% p.a. (inflation adjusted).

"If this rate of appreciation is expected to continue then our estimates suggest that houses are fairly valued," the paper said.

 

"Many observers have suggested that future house-price growth is likely to be somewhat less than this historic average. In that case, at current prices, rents, interest rates and so on, the average household is probably financially better off renting than buying."

 

Assuming real house prices increased at the historical expected real rate of 2.4 per cent, buying beat renting if the owner held for more than eight years. However if the expected real rate of 1.7 per cent experienced over the past 10 years was used, owning only beat renting over longer than 30 years.

What's interesting about this is that the RBA wants to tell this to us now, a fortnight after telling us that house prices don't always go up. It is as if the RBA is trying to jawbone the price of homes lower without admitting to there being a bubble.