First home buyers still better off renting

BNZ Rent-or-Buy affordability report from interest.co.nz   

For June 2009 for IMMEDIATE release – July 30, 2009

First home buyers still better off renting than buying

First home buyers were financially better off renting in June rather than buying, as another slight rise in interest rates and house prices widened the gap, the BNZ Rent-or-Buy measure of housing affordability shows.

Once the likely cost of rates, maintenance and insurance are taken into account, the typical first home buying household is around NZ$57 a week better off renting than buying, although this has improved from being NZ$150 a week better off a year ago because of lower interest rates and house prices in the last year. When house prices peaked in November 2007, a household would have been NZ$187 a week better off renting.

The BNZ Rent or Buy measure from interest.co.nz worsened marginally for first home buyers in June from May. Excluding average maintenance, rates and insurance of NZ$61.30 a week, the measure found it was NZ$4 a week or 0.1% cheaper to buy than to rent for a typical first home buyer.

This measure assumes a couple aged 25-29 are both earning a median income and are living in a 3 bedroom house with a median rent of NZ$310 a week. Their choice is to either stay renting or to buy a first quartile house with an 80% home loan at the average 2 year fixed rate.

Renting (Median 3 bdrm)

Buying (1st quartile home)

Difference (Buying advantage)

June NZ$310

NZ$306

NZ$4

May NZ$310

NZ$305

NZ$5

June NZ$310

With maintenance NZ$367.30

-NZ$57.30

May NZ$310

With maintenance NZ$366.30

-NZ$56.30

“The gap between renting and buying is wide and getting wider once maintenance, insurance and rates are included,” BNZ Chief Operating Officer Stephen Mockett said.

“The outlook for first home buyers who are renting is looking bleaker as we head into 2010, given interest rates are likely to rise, house prices have stopped falling and incomes are flat,” Mockett said.

“However, the position is still much better than a year ago when the gap was wider because interest rates were close to 10% and house prices had peaked.”

The Rent or Buy measure is a sister survey to the BNZ Home Loan Affordability survey. The assumption for maintenance, rates and insurance is taken from the most recent Quarterly Economic Survey’s results for the year to June 30, 2007.

 
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