The value of Australian homes has been falling, and this has spooked both investors and home owners with big mortgages. On the flip side the fall in housing prices is a welcome relief for young investors considering buying into the market over the coming year, and this relief has been further bolstered by the reduction in interest rates. The question I want to raise when it comes to first home buyers is whether getting the Australian Dream is really worthwhile.
A study of interest rates and house prices over history suggests that anyone purchasing a home with the intention of paying off the mortgage over 30 years better pay attention to some important facts. The main one is that after 30 years the value of the home is roughly equal to what you originally paid plus what you had to fork out to the bank in interest. Therefore, if we take out the value you may get out of enjoying your own home, then the family home is really a form of forced savings rather than being an investment.
All too often I hear people tell me that they want to wait until they pay off their home before they think about investing, but there is a better way especially for first home buyers. So in terms of long term wealth creation you are farbetter to rent a house where you want to live and buy an investment property to legally use the tax laws of this country to build your wealth. If you wait until you pay off your own home before you start investing then unfortunately you are likely to end up like most Australians, without sufficient wealth to retire.
We have now finally seen some direction in the market as the All Ordinaries Index has traded higher for five of the past eight days, having reached its highest point since mid-May. This now suggests that the low I was expecting actually occurred in early June and that we are now albeit finally moving up to our previously mentioned price targets. Over the next few weeks I would expect our market to continue to rise to around 4300 and possibly as high as 4400 points.
That said I do not think this move up will last long as theyearly low for our market is due sometime around September. Given this, unless you are a short term investor, I suggest that you take a ‘wait and see’ approach to the market, as the best opportunities will come not right now but a little further down the track.
by Dale Gillham | Wealth Within