First Home Buyers Not Interested in the 30 Year Debt Trap

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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 The Daily Reckoning Australia

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From the Archives…

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Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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6 Comments on "First Home Buyers Not Interested in the 30 Year Debt Trap"

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Ronnie
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Greg me old mate. I got into Gold and a lotta of Silver from reading this newsletter. I have zero debt, (sorry owe 50 cents on a credit card,)and sleep sound at night.
So how long is the piece of string holding up the property market? Found the suburb/streets I want to buy in then move into shares, on DR’s go signal. Paying for the best tips of course!

David
Guest
Ronnie, I’ve been reading these newsletters(on and off) for a few years. There are constant predictions of the gold price going to $5000 and the silver price to $200 – these are the words of desperate PM spruikers. Neither has gone anywhere in the last 12 months – in fact, if you’d put your money in the worst bank in the country and only got 3%, you would have been much better off! In the meantime my tenants have been paying me a nice rent (about 5%) and demand for rental properties continues to be strong. I own about $1.8m… Read more »
Jarrod
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The challenge as I see it, is in having the certainty that it is worth doing anything at all. As a 24 year old, with a 22 year old partner, just past our two year anniversary mark, we’ve faced alot of challenges along the road in our time together, including homelessness and unemployment. I’m now at the stage in my own personal journey in financial literacy that just in the last year I have arranged all of my debt (not paid off as I have it all managed appropriately, no rush to get to $0 when there is no interest… Read more »
frogmorton
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“First Home Buyers Not Interested in the 30 Year Debt Trap” is the headline. It’s true that some punters prefer a 60 year rental trap. Rent-for-lifers ensure that those who chose property as their asset-of-choice will enjoy comfort and independence during their retirement. R4Ls will be paying astronomical rents in their twilight years, wiser in poverty, thanks to ‘the smart money’ merchants.

frogmorton
Guest
frogmorton
Guest

So, how’s it going trying to crash a buoyant Australian property market, goons?

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