Dirt is Not The Answer to Your Dreams

Thinking about taking the leap and buying your own place? Think again.

If I were thinking about buying a house in Australia, I’d be feeling a bit paranoid about now. With all the regular pontificating in the media about why we’re seeing a property bubble and contrary reasons why everything’s fine, the daily analysis of clearance rates and median prices, to the firehose flow of Chinese money and government controls on Chinese money… one can just sense that something’s amiss.

Jennifer Hewett writes the Page 2 column in the AFR. Two Fridays ago (3 March 2017) she penned a story about her recent purchase of a new residence somewhere in Syndey and how she felt that fit into what’s currently happening in the market. The story was framed around the a few personal details about her purchase, what it meant to her and her family, that sort of thing — a nice departure from the typical stuffy acronym and old-white-guy AFR reporting. A few of her comments seemed to unintentionally capture the zeitgeist and woes of the current market.

Jennifer’s story starts with the purchase of a new unit (‘unit’ sounding quite extravagant) for what she felt to be an outrageous price, but only after selling the former family residence for what felt like an outrageous price. The purchase was made after getting heat from the selling agent to get in or risk missing out and the ‘unit’ going to another purchaser. I am sure there are a lot of people feeling this push-pull at the moment. Sell and you better jump back in or else you may miss out on the big rush you just got from cashing in. And those who aren’t yet in the game, don’t you want to be a part of the action? People are making a fortune! Best get in now!

She further commented that — as is reported and also refuted in the AFR — the market is hot and there’s no sign of stopping. This is as sure a sign of the recency effect as you could want, and I think this is rampant in the eyes of the happy public right now (I’ve been reading a bit about the recency effect recently, and the guys who coined the phrase. If you’re interested in psychology and why we make the decisions that we do, most definitely check out The Undoing Project by Michael Lewis). You only have to go back just 5 short years ago to 2011–2012 to find a multi-year string of down years in Melbourne property, however with all the news about clearance rates and high prices, and $$$$, etc. you’d be forgiven for thinking the Australian property market is a sure bet.

In the end, Jennifer lamented about her 20-ish year old children and the unlikely prospects for them to buy a home of their own. We are going through a period right now where the Australian Dream of old, probably created by one government or another and happily perpetuated by the banks and builders, is changing. No longer is The Dream of home ownership within the grasp of everyone, and to those from a different generation, this is sad and, to some, downright blasphemous. These same people are also probably gnashing their teeth at the inability of Australia’s youth to get a good stable job down at the Ford plant. Instead of pining for the past, shouldn’t we be looking toward the new Dream? Why does the Dream have to be based an arbitrary purchase of a square of land, some dirt? There are other investments out there that you could pin your long term fortunes on, and certainly ones that don’t require tax breaks like negative gearing to prop them up. Perhaps the Dream doesn’t need to be based on wealth creation and having your own lawn to maintain either. Sure, those who bought houses 25 years ago and are now selling are doing pretty well for themselves. You could also say the same for those who bought shares in the boring old ASX 25 years ago and sat on them (the ASX went up 230% in the last 25 years).

So the old Australian Dream is vanishing, people are selling their properties for crazy amounts of money, and prices are going up with no signs of stopping. If you have a chance to wander down to an auction in your neighbourhood in the near future, look around and you’ll be able to see all this. The buyers there, you’ll see it in their eyes, the fear. It’s the fear of missing out. So let’s just keep buying and it’ll all be ok. Right? Not me: I’m still paranoid. I’m staying out.