First Home Buyers Not Interested in the 30 Year Debt Trap

What’s this? First home buyers are not interested in taking out a loan to buy an overvalued property? The Australian Bureau of Statistics released data yesterday showing that loan approvals fell 1.5% in December, to the lowest level in three months.

The Australian Financial Review reports that first home buyers accounted for just 14.9% of all loans taken out in December, well below the long run average of 20.1%.

Yet official interest rates are 3%. It’s not an emergency rate, of course, so the last time rates were this low – in a non-emergency setting – was in the early 1960s. With money being so cheap, we can’t understand why today’s little tackers aren’t rushing headlong into the housing market. After all, it’s a sure thing…property always goes up.

Source: Australian Bankers Association

This is all the more confusing because when reading the Weekend Financial Review a few days ago, property preacher Christopher Joye said, ‘Housing affordability is now at its best level in a decade, so there is every chance capital growth will accelerate this year.’

Mr Joye also had a nice chart showing how average capital city prices have increased 6% since the 2012 low. The inference was that house prices are set to head higher again, so get on board.

Well, we’re not sure that first home buyers are listening to Mr Joye or the other experts singing the praises of the property market. Which is strange, because Mr Joye really knows what he’s talking about. He has an interest in RP Data-Rismark, a property data compilation firm, and sits on the board of Yellow Brick Road, a start-up mortgage provider.

Perhaps it’s just a case of young adults with young families not having the means to, or not wanting to, walk into a debt trap for the next 30 years. Too many experts live in a bubble world themselves, judging affordability by looking at statistics rather than human nature.

For what it’s worth, we think residential property is going through a classic ‘dead cat bounce’. It happens when all bull markets turn into bears. Aussie property peaked in 2010. It began falling in 2011 and the first half of 2012. It has since had a knee-jerk revival on lower interest rates and misplaced optimism on China.

But as recent data has shown, it’s not bringing new buyers into the market. It’s just extending the Ponzi scheme going on amongst those already in the thick of it.

Greg Canavan
for Markets and Money

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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

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