Mortgage Prisoners with Negative Equity | 60 Minutes Australia

Here's a link to Martin Norths maps

Quote from him below

Of note, he promotes Harry Dent on his site but also mentions he disagrees with him on some issues

 

Quote from him below

“As discussed in my video, this is based on the number of households in each post code recording at least one property in negative equity - where the current mortgage (net of any offset accounts) in greater than the estimated current forced sale value plus sale costs. The analysis is based on results from our 52,000 household surveys nationwide.”​

I don’t understand this and it raises a whole stack of questions for a dumb bugger like me, including:

1. If one owns a number of properties in one’s own name AND only one property is in negative equity BUT the whole portfolio is is positive equity, why would this household be categorised as negative equity?

2. How does he account for properties owned by trusts, including SMSF?

3. How does he account for loans secured against a property where the funds were used for other purposes including buying a business, buying a share portfolio, ...

4. ...

I am trying to get my head around as to how valid is his data and his conclusions .

 

One issue with his map is it does not differentiate surburbs with the same postcode. One surburb with predominantly established houses may be badly affected by the neighbouring surburb which is mainly new estates/going to be built estates.

 

And what proof is there that the numbers on his map are correct? It looks 'scientific' but I can make a lot of s*** up diagramatically that looks legit too.

 

It's not valid.

1. Based on survey data

2. Based on estimated current forced sale value

How accurate are their estimated sale values?

Mostly though, is the whole premise of the study flawed?

Say a family buys a home for $500k, 30 year loan, P&I. All they want to do is pay down the loan. Does it affect them or anyone else if the value of the property increases to a million dollars? Does it affect them or anyone else if the value of the property drops to $400k?

Not really. Negative equity only becomes a factor in a forced sale situation. How many forced sales will there be really? That's something that can't be accurately predicted or modelled.

Also recall to qualify the investor has to have "at least" one property with negative equity. How many have one negative and one or more with positive equity? It is an option for those people to sell two properties. One to realise a capital gain and the other to crystallise a loss. It could be a smart strategy for some.

Martin North is the new Lindsay David. What is old mate LD up to these days. Writing a sequel to Australia: Boom to Bust explaining why the Australian property market didn't collapse like he predicted?

 

It's based on survey data. It's as accurate as the survey data.

 

Agreed - which is not very accurate. If this was actual research a subject pool of 52000 would be torn to shreds for a 3 state population unless it was researching something very specific that only 60,000 people had. If it's evenly spread over the 3 states (probably not as a volunteer survey) then approx 17,000 respondants from each state. How can you get meaningful data considering the number of suburbs polled. There might be one respondant from one suburb answering the question.

What the data might be telling us is that 52,000 are in negative equity on one of their properties but the rest of the australian population is not?

 

Survey might be flawed, sampling might be flawed but the number of samples is more that sufficient for a 1% Moe with 99% confidence.

 

A 1% margin of error and a 99% confidence level is very high.
Though if the sample isn’t random, it doesn’t really mean anything in terms of representing the entire population of a country, state etc.

 

Agree. Point was calling out the post I refed with respects to sample size as being an issue. Truth is with without survey details hard to gauge the validity of the results.

 

Or it might be per day