Puzzle Finance Blog


Home is where the house is


BUYING a house is still the best long-term financial decision that people can make.

Falling home prices in recent years, reports that we're becoming a nation of renters, adult children hanging around mum and dad's home for decades and lingering housing affordability issues might all paint a negative picture of the future of property ownership.

 However, none of those are as powerful as the financial benefits of holding an asset that puts a roof over your head forever and delivers delicious inflation-beating benefits.

It wasn't that long ago that $180,000 seemed like a monster mortgage, but now that figure is well below half the median house price. Anyone who bought 10 or 15 years ago is sitting on a more expensive asset with relatively low mortgage payments - as long as they didn't blow their equity on big screen TVs and other toys.

Even if you don't think house prices are going anywhere in the foreseeable future, owning property gives you a shield against rising inflation.

Since late 2009, Adelaide's average house rents have jumped almost $30 a week to $359. Rents will continue to rise in the years ahead as inflation pushes everything up, which means tenants will always be at the mercy of their landlords.

Almost 20 years ago, I attended a pre-marriage couples course at which a financial adviser told us that crunching the numbers showed it was better to rent than buy, and then invest the savings in shares.

He may have been right back then, but that was well before that nasty little wealth-destroyer called the GFC, and he also failed to grasp the reality that most people spend whatever is left over after paying their bills and loans every month.

There are just too many temptations out there.

Being an owner rather than a renter becomes a forced form of saving that will pay off over the long term, which these days means at least seven or 10 years. The icing on the cake is the tax benefit of having your own home. It's the only asset that is free of capital gains tax when you sell it.

It may not feel like it when house prices are weak, but owning property for the long term is still an extremely wise financial move. Just ask most 60-year-old renters.

Anthony Keane is the editor of Your Money.

Posted by Anthony Keane - The Advertiser (News Limited) on 12th March, 2013 | Comments | Trackbacks
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