Do the Maths

Graeme Salt
So, you are a wannabe first home owner, you go to auction after auction and constantly beaten to the punch. What do you do?

Do the maths.

This weekend, Sydney had an 83 per cent auction clearance rate and Melbourne, 77 per cent.

The media is running wild with stories of people being beaten to the punch and outbid at every turn.

But, the reality is that house prices are up nationally between 5 and 7 per cent over the past year, while income growth over the same period is up about 5 per cent. The calls about a bubble are way overdone.

As the resources boom continues to cool, it is likely that there will be a rise in unemployment – this will dampen people’s willingness to spend up big in property. NAB Chief Economist, Alan Oster, says the unemployment rate will probably rise to at least 6.5 per cent by the end of next year which will temper house price rises. He is expecting house prices across the country to rise in line with growth income.

But that is a year and a half away, what do homebuyers do in between?

Wait.

The really good thing for first home buyers is that there are some very handy grants and tax incentives that mean that they will be better off waiting for this storm to pass than to rush in and buy the only thing they can afford.

First Home Savers Accounts (FHSAs) were introduced by the federal government in 2008. Up to a maximum limit, the government will contribute up to 17 per cent of what you save into a First Home Saver Account. On top of that, the banks will pay interest too.

And with interest taxed at 15 per cent, for many, investing the money in a FHSA is a better than in a personal savings account where they are taxed at someone’s concessional rate.

So, if you are a first time buyer, you will be more than 17 per cent better off with a FHSA than without. A return of 17 per cent or more is still better than the most bullish forecast for property – so you will be better off, renting, saving and then buying when things are calmer.

For some, the four-year timeline of FHSAs is too long. But either way, if you work it out with a pen and paper, you will work out you are better off waiting.