Friday, 21 December 2007

Home Ownership Still Cheaper Than Renting, Is It?

"Owning one's residence continues to be a cheaper alternative than renting, reports the daily Helsingin Sanomat." By the way large income from Helsingin Sanomat is coming from advertisement i.e real estate company. Among that, they own the popular oikotie, a web site that charges property sellers a fee for advertising their flat for sale...So maybe they are now seeing a loss in revenue thus a campaign of deception and disinformation.

"The report quotes the Pellervo Economic Research institute PTT to the effect that the total costs of living in a self-owned residence are only about 60% of the expenses of a rental."
PTT, there are the same guys who said that in 2000 there was no overheating ... So those always appear on the screen when things are on fire... :

In October 2000, Vesa Vihriälä, heads the Pellervo Economic Research Institute (PTT) in an article published by Helsingin Sanomat was saying :"Perhaps this will still the cries of overheating that we have been hearing for three straight summers. Personally I still do not regard the economy as in an overheated state".
Reference: "Recession time again, or not? The experts don't believe it's coming quite yet"

"During the late 1980s and early 1990s, the opposite was true. At that time, it made more economic sense to rent. However, since the mid-1990s ownership has been less expensive."

"The paper says that if rents continue their upward trend, home ownership will become increasing attractive. On the other hand, high purchase prices, especially in the capital area are a barrier to ownership for many people."
Don't be fooled by those kind of article. Those have always self interest and don't care putting people into trouble. See as well another post for those "Economists comments"

Now property prices are very expensive (see how far price have risen in 10 years) and prices are declining (3%) at a time of economic uncertainty. My advise is to wait and see. Remember a 10% drop on a 200000 euro property is 20000 euro saved which will cover the rent for at least 1 to 2 years. So you have time to evaluate the market direction and time to find the right property. Making decision in hurry increase the probability of mistakes.

The professional investors are usually smart and informed. Just have a look to the property companies (see previous post, and in particular YIT), they have shed 50% of their value in just 6 months...So Professional investors understand that investing in property is not good for the next year or more...

Source : YLE


Anonymous said...

I will not attempt to comment on the overall situation of rent verse owning, but I have found myself in the situation where I felt it best to buy rather than rent.

In doing the calculations (and knowing that prices are high) I still found in my situation the long term effects of buying out weighed renting.

BUT this was only accompanied by downsizing, moving from a two roomed rented flat to a single room flat which was exactly half the size, and it will take over 8 years to gain an overall benefit, but as I am likely to live that long it is a risk that I was willing to take.


Anonymous said...

1- Calculation are always hard to make. In the past 2 decades we were in an deflationary environment, interest rates went in one direction and that was downward. Therefore housing price had readjusted upward.

Now it's different, interest rates will be higher, much higher, in the medium to long term, than it has been in the past 2 decades. Housing prices will readjust too, this time on a downward path.

2- The argument I heard about taking 25-30 years loan, is that when you retire you have no worry about having to pay a rent. By extrapolating those same ones are effectively saying that they are ready to pay a rent to the bank and a premium to own the property.

That premium is the money that you can't use now, either by better investment or by just enjoying while you are still young.

You see in 30 years, I don't know in which state I will be..but now I I rather prefer pay a rent under 1000 or far less than paying over 1000 (and far more) and drastically reduce my way of living...

Right owning is not bad but you just do it according to your affordability... And timing is important.... Today it's not a good time, no doubt about it especially when you are witnessing a world wide credit crisis...