Are you looking at the Melbourne housing market, scratching your head and wondering whether it is cheaper to rent or buy? The past few years have certainly proved tumultuous in the property market, with lockdowns and supply chain shortages creating incredible shifts in demand as the availability of new properties became scarcer.
What’s more, we are now firmly in an adjustment phase within the housing market in Australia, leaving many unsure of whether they should become homeowners, or take advantage of the benefits of renting a house, such as added flexibility and freedom.
In this article, our specialists at Noel Jones break down everything you need to know before making your decision.
An Overview of the Current Melbourne Housing Market
The Melbourne housing market remains in high demand, with data from the Australian Bureau of Statistics forecasting that it will be the nation’s fastest-growing city over the next decade.
After barrelling out of rapid growth throughout 2020 and 2021, however, the values of dwellings are slowly falling back into correction territory:
|Property Type||Average Price||Month-on-Month Change||Quarter-on-Quarter Change||Annual change|
|Dwellings within the Capital City||$752,777||-1.20%||-2.90%||-8.10%|
|House within the Capital City||$905,894||-1.40%||-3.40%||-9.4%|
|Units within the Capital City||$589,752||-0.80%||-1.60%||-4.80%|
Source: Corelogic, 2nd January 2023
This change was partly driven by a number of new properties being built throughout the state, as well as many locals choosing to move interstate, bringing the balance closer between supply and demand.
There are also the consistent rises in the cash rate to consider, jumping from 0.35% to 3.1% in just eight months, making it more expensive to borrow money:
|Effective Date||Change% points||Cash rate target%|
How to Decide Whether to Rent or Buy a House
Unfortunately, there is no definitive answer as to whether you should rent or buy a house in Melbourne. Instead, there are a variety of factors to consider, balancing the conditions of the housing market in Australia against the options that best fit your current financial situation, lifestyle and long-term plans.
Regardless of whether you decide it is cheaper to rent or buy, you need to make an informed decision that you won’t regret down the road.
Advantages & Disadvantages of Buying a House
Owning a home can offer many benefits. For example, with every mortgage repayment you make, you are building equity in the property. Over time, this can lead to substantial savings and the start of generational wealth building. Moreover, as a homeowner, you can make changes to your property to suit your needs and style, increasing the value of your home, as well as how you enjoy it. You also won’t have to worry about leases ending and having to relocate at the command of your landlord.
It’s true that average house prices are still close to record highs and could continue to drop, but then again, interest rates are also likely to continue rising to tackle inflation. This means any savings on house prices could be eaten up by higher mortgage repayments.
Drawbacks & Benefits of Renting a House
One of the main benefits of renting a home is the flexibility it offers. If you aren’t looking to settle down or commit to a long-term mortgage, renting can allow you to move quickly if needed without the stress of selling a property. Additionally, renters do not have to worry about the costs of maintenance and repairs as those responsibilities fall on the landlord. This can be especially beneficial if you live in an older property where repairs may be more frequent or costly.
Another advantage of renting is that it often requires lower upfront costs to live in your preferred property. Renters typically only need to pay the first and last months’ rent and a security deposit, while homebuyers need to save for a down payment, closing costs, and other upfront expenses.
With a higher demand than there is supply in the Melbourne housing market, however, competition is strong.