Mum and dad investors have Australia teetering on the edge of a housing crash, report warns

The doom and gloom articles just keep on coming. Sensationalism or truth?

Mum and dad investors have Australia teetering on the edge of a housing crash, report warns - ABC News (Australian Broadcasting Corporation)

 

Don’t even bother.
Mum and dad investors can’t have Australia doing anything. Whatever it claims is sensationalised journalism

 

Firstly it is by an investment company Watermark who appear to have a vested interest in positioning the public to support the building of residential apartment blocks by Superannuation funds.

Then their Fig 8 and Fig 12 charts contradict each other. One has loans to Australian investors at 24% and the other at 30%.

 

You are being polite @Xenia. I would call it nonsensical rubbish.

 

I think you'll find that the view they hold is that Mum and Dad investors are "unsophisticated" and inexperienced when it comes to investing.

The question is what will these inexperienced investors do when capital growth fails to materialize.

 

are you comparing "existing Perth house prices / WA % investor landing" vs "new investor mortgages "?

 

Soft target?

 

what we do know is a high level of debt always lead to some sort of fall out whether it a correction, a crashed we don't know, this is a fact but timing will always be the issue, when? not if

Debt has to be repaid at some point whether from saving or from other people paying a higher price than you if people are paying a higher price than you, they are taking on more debt and on it goes, now this can not go on forever because mathematically it becomes very large and servicing will then becomes an issue.

If people are negative gear and mostly using capital gain as a way to profit then it becomes like a mini pyramid scheme as you counting on other people going after you to pay a higher price while you losing money holding the property.

This absolutely works for early investors and it can go on for a while like a pyramid scheme but
at some point, the limit will be reached and then the fall out start.

what is this limit? looking at history across many nations, we are close to that level, how long can we carry on?, no one knows could be another 2,5,10 years?

I think it a question of not if, it a question of when we breach the limit if people continue negative gear to the max.

And remember leverage is 2 edge swords, lot of people taking out equity from one property to buy the next, when price keep going up it won't be an issue, when it going the other way you not losing one property you will lose a lot more, how much more dependent on how much equity you taken out and how much leverage you taken on.

 

I agree @PandS. After a boom there is always a correction.

 

I hate the term 'mum and dad investors'..... isnt everyone

Implies inexperience??????

 

Considering the time frames as some markets will go backwards for 7-8 year periods and as most people forget this and that's is when the in-experienced become experienced ..

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After 26 years of uninterrupted growth its easy to fall into the trap of complacency and believe things will continue like they have.

 

The only problem is after a correction there is not always a boom. It can be flat market for years followed either by next mini-boom or by another fall (correction).

 

I count flat as part of the correction. Sydney 2003 to 2013 was a correction to me. Then what happened?

Hint: there is always another boom. No one said booms are close together. Assuming the Sydney market peaked in 2017, how many years since the peak of the last Sydney boom. How many years before that was the last peak?

 

there is no such law/rule. The next peaks may be much lower than previous peaks.

Look at oil prices. They had highest peak in 2008 and then a few lower peaks in 2011 and 2012. After that prices corrected further 3 times, lower than those peaks. Everyone now understands that there won't be any peaks in the near future (20-30 years) like in 2008 and 2011/2012.

...and definition of correction (IMO) is relatively quick and small reduction after long growth period. In case of 1 year drop (-10%) after 4 years of growth, then 10 years of flat, 1y is correction, not 11years

 

That's Right. In past cases it has moved to other asset classes as well.

 

Show me a time in history in the Australian property market where there has ever been a correction and there was no boom after that.

No one said the next peak has to be bigger than the previous peak. A boom is just a boom: a sharp increases in prices over a short period of time. Does a share price boom every not exceed the previous peak? Nope.

Booms are driven be people and people will always over buy after a protracted period of no or low growth. It is human nature. Until human nature changes, there will always be boom/bust cycles.

 

Yes it does, sure. And what happens after that Simon? You know the answer, you are a student of economic history.

 

What do you call the 10 years then?