It’s never a better time to buy

With falling Interest rates and the increased first home buyers grants, many real estate experts are saying it is never a better time to buy. Actually, when you come to think of it – when isn’t it the right time to buy? My stock broker will give buy and SELL recommendations for stocks, suggesting some are overvalued. Yet, when was the last time a real estate agent said housing was overvalued, we are at the top of the bubble and that perhaps it’s not a great time to buy?

None the less, Interest rates are falling and at a scary pace. Predictions are for a further 100 basis point cut come next month.

But while Interest rates are cheap, we have accumulated a lot more debt that previous generations. Houses are at ridiculous price to income multiples. The size of the debt really shows when you look at data from the RBA on Interest Payments vs Household Disposable Income.

When the boomers had 17% interest rates that they will never let anyone forget, house prices and debt was reasonable. As a result, the average Australian household put away a little more than 5% of household disposable income to service the mortgage. Even with rates today a faction of what it was in 1989, we have so much more debt and as a result the average household has to put away 11.4% of household disposable income to service the mortgage.

So is it really a great time to buy? If house prices do begin to correct back to normal levels, then all you do is lock that excessive debt in so you can spend the rest of your life paying for it.