Tag Archives: serious

home or a loan?

Posted on by
1

There was an excellent debate between Simon Castles and Karin Derkley in yesterday’s Sun Herald about buying vs renting homes in Australia.

Simon is a writer for The Big Issue and Karin is the author of Buying and Selling Your Home for Dummies and Getting Started in Property for Dummies.

I am quite opinionated about this topic but I was interested in what both sides had to say nonetheless.

Simon Castles quickly dismissed the ‘rent money is dead money’ fallacy:

…renting makes financial sense. The old argument is that “rent money is dead money” but in truth, you either rent a home or “rent” the money to buy a home. Isn’t that, in effect, what interest is? And, boy, aren’t home buyers paying a lot of that right now. Interest must feel an awful lot like dead money when you keep having to pay more of it.

and finishes brilliantly:

A home, we too easily forget, is not something that you can buy. A house you can buy but “home” you can only feel. I’ve felt at home many times – and it has never come with a big mortgage attached.

Karin Derkely’s argument is mainly around financial security pointing out that the Australian economy, and tax & social security laws are built around the idea that people own the property they live in. She also points out the capital gains tax exemption and encourages “trading up” which I believe to be one of the main contributors to our housing affordability dilemma in Australia at the moment.

Karin also discusses the benefits of having a mortgage with equity in your home. She says you can use the equity in your home to borrow money for depreciating assets: overseas trips, cars etc. The problem I see with this is that this equity makes people feel “rich” so they go and buy these things with a “rich” mindset and without thinking of the consequences. Although interest rates on home loans are lower than credit cards, home loans usually have a long repayment period so the amount of interest is still large.

housing affordability – what went wrong?

Posted on by
4

On the verge of another (official) interest rate rise this week in Australia, a soon to be published report predicts that:

“750,000 owners will be hit by ‘mortgage stress’ in the coming months, meaning more than 35 per cent of their income will be swallowed by home-loan repayments”.

Last week it was revealed that the housing on Queensland’s Sunshine Coast is less affordable than housing in New York City!:

“On average, Australian families are forced to spend 6.1 times their entire household income to buy a typical home compared to 3.1 times in Canada and 3.6 times in the US, and that’s before interest charges.”

“Australia (with New Zealand) has the most unaffordable housing in the surveyed nations,” economist and report author Wendell Cox said.”

So it seems there are two groups of people in Australia who are screwed. The people who paid too much for their home and can no longer afford it due to frequent interest rate rises, and those who are kept entirely out of the housing market because they can’t afford real estate any longer or don’t want to continue to inflate market prices. I have a lot less sympathy for the former than the latter.

There seems to be another group in Ausralia who are laughing. These are the ‘smart’ baby boomers who have a fully paid off home and a few investment units. The only thing worrying them is that their kids are finishing uni with five and six figure hecs debts, no permanent jobs and little chance of ever owning their own home.

Most people who only own one property (their home), even if they bought it when prices were cheap, aren’t really benefiting from the property boom. If they sell their house now for ten times what they paid for it, they still have to buy another place, and this is going to be just as expensive, if not more, than their current home. Then they have to spend more on transactional costs and pay higher property rates because their property is worth ‘more’ than before.

So who is to blame for the artificially inflated house prices in Australia? Is it the baby boomers for lapping up their investment property portfolios? Is it the government for allowing capital gains tax exemptions on primary places of residence (encouraging continual ‘upgrading’)? Is it the banks for lending to sub-prime customers who can’t afford a house in the first place? (sounds like the US anyone?) Is it the real estate agents for discouraging renting and scaring people into buying their own home?

I am sure that everyone has a different opinion but I haven’t seen any easy or quick way out of this hole we are in.

australian housing (un)affordability and low-rent living

Posted on by
1

Housing affordability is a contentious issue at the moment in Australia. Homelessness is also a big problem. Did you know there are 110,000* homeless people in Australia, 26,000* of who live(?) in Queensland?

Kitty and I are long term renters and we are proud of this. We choose to rent rather than have to rent. To us renting makes a lot more sense both in financial and lifestyle terms, both of which I will outline below.

The Advantages of Renting

  • A significant amount of rental housing in Australia is negatively geared. This basically means the owners pay more for the property each week then we pay them. The place we rent is valued at $550,000 (stupid I know). The owners pay a loan (~$950** week, ~$49,712 p.a) plus over $5000 p.a in body corporate, >$1000 p.a. in council rates, real estate admin fees (~$1500 p.a) and property maintenance. This means it costs the owner about $57,200 for our place each year. We pay them a gross total of $420 * 52 weeks = $21,840 per year, all inclusive. Don’t listen to Australian real estate agents though as we are apparently “paying off someone else’s mortgage“. I don’t think so. If you don’t believe me, visit here and here.
  • I can live where I want, close to the city, my work and recreational facilities. I spend very little on public transport and have a small carbon footprint as I can walk just about anywhere in the city. The place I rent has a pool, spa, gym and home theatre, all included in my rent. I don’t need to spend any money on these activities.
  • As low weekly rent, compared to my income, means I can be more flexible in living. As Alexander Kjerulf explains in his excellent ‘low rent living‘ post, I have the freedom to leave a bad job and the freedom to take a chance on a new job. I also have freedom to do what I think is right and what I enjoy.
  • I don’t have to worry about making ends meet. I save money every week. I can spend some money on things I love doing (good value things) such as concerts, music, traveling and eating. I can find other investment opportunities as I don’t use all my money to purely pay for where I live. I avoid opportunity costs.
  • There are enormous transactional costs in buying a home. Stamp duty, inspections, mortgage lenders insurance (rip-off), other insurances, loan fees etc. I am way too frugal to deal with all of these.

The Disadvantages of Renting

  • We have rental inspections. I don’t like these as they do feel like an invasion of privacy, but, they are a good motivator to keep it clean and we use them to request property maintenance and improvements.
  • People still generally look down on renters (even though we choose to rent). People often ask me why I don’t buy a place as if I am stupid, or poor. I am sick of having to justify myself. “But you’ll miss out“, “It’s a forced savings plan“. I hear all the same quotes, all the time. From now on I can just refer them to this blog post.
  • Rents go up. Yes they do, but so do wages. Interest rates also go up (like tomorrow). In the past two years we have had two minor rent rises when there have been twice as many interest rate rises. We just signed a lease for 12 months during which the owners can’t raise the rent.
  • You can’t put pictures up. This is just plain rubbish. We have an agreement with the owners where we can have one piece of art on every wall in our apartment. We also have own rugs and heaps of pot plants (drought friendly succulents). We also have heaps of our own lamps. Our apartment looks more homely than many people’s ‘own’ homes.
  • You won’t keep up with the Jones’s. I guess this is why many people buy expensive houses in the first place. As Michael Franti sings: “Only a rat can win a rat race”.

* City of Broken Dreams – Courier Mail Q Weekend – 03-04/11/2007
** See Image Below

Anz Home Loan Calc

credit card insurance is a rip-off

Posted on by
2

I have always suspected that credit card insurance was a rip-off but only now I realise how much it is so.

Credit card insurance is an optional (though highly encouraged by the banks) feature of your credit card account. It is a premium charged per month on the closing monthly balance of your credit card. This is basically insurance in the case of emergency that you cannot afford to pay your credit card bill.

The problem with it is that the bank still charges you this premium even if you pay the account off in full by the statement due date.

If you are like me and pay off your credit card every month you are literally paying money for absolutely no insurance coverage whatsoever.

The other sneaky trick that some banks do is enable it by default on new credit cards. I had to ring up a few years ago and cancel it specifically after receiving my first statement.

You can imagine then how pissed off I was this week when I rang up to activate a replacement credit card and when waiting for the card to be activated the guy on the phone was trying to talk me into enabling credit card insurance. Urrrghh.

Visa Card

(Photo by dahnielson)

blog action day part three – avoid bottled water

Posted on by
Reply

Today is Blog Action Day so I plan on providing some of the small things that contribute to reducing my impact on the environment.

I try to avoid buying and drinking bottled water as much as I can. This is because:

  • Creating and transporting plastic bottles containing water is not environmentally friendly.
  • Transporting water from one side of the world to the other (eg. Evian, San Pellegrino) is just plain ridiculous.
  • Empty plastic bottles end up in landfill.
  • The cost of creating a bottle of water uses about 16 times its volume in water.
  • Tap water is drinkable. For those who don’t like the taste, water filters are available.
  • Spending money on bottled water is a waste of money.

Bottled Water

Picture by cowgummy

blog action day part two – use your local library

Posted on by
1

Today is Blog Action Day so I plan on providing some of the small things that contribute to reducing my impact on the environment.

I try to use my local library as much as a I possibly can. Using the library has many environmental, economic and social benefits:

  • Most suburbs/areas have a local library. This means you don’t need to travel very far to borrow books.
  • Libraries are free to use and therefore economical (I understand libraries are funded by council rates, but you do pay these whether or not you borrow from the library!)
  • Borrowing books is the ultimate form of recycling. I usually only read most books once so it makes sense to borrow them. Less books would need to be printed if more people borrowed books from libraries.
  • Libraries have a large variety of books across the various branches, much larger than a retail book store. You can easily find some old lost gems for loan that are well and truly no longer for sale.
  • Every time you read a really good book you can be happy to know that many other people before you have read that exact same book.
  • Libraries offer social clubs as well as an environment to enjoy without material or commercial solicitation.
  • Reading books makes you smarter and more of an interesting person.
  • Libraries offer more than just books: cds, dvds, magazines.

Library Book

blog action day is coming

Posted on by
1

Blog Action Day is imminent and I am currently thinking of a topic that I’ll write about next Monday.

In the meantime I noticed their article on ‘50 Quick, Painless Ways You Can Help the Environment Today‘.

The list reminds me of a bit of “Change the world for ten bucks“, which is an excellent ten dollar investment by the way!

I am happy that I have pretty much already followed most of the ideas on their list, including 42. Use Cloth Shopping Bags. I have a small collection of shopping bags that I use every time I go shopping. I used to occasionally I forget to take them shopping with me. I have overcome this by a) hanging some on the back of the front door to our apartment so I can’t forget them, and b) folding one up and putting it in my work bag for any incidental purchases (or library borrowings).

Bloggers Unite - Blog Action Day