… apparently.
Did anyone else see these wacky results from an RP Data survey last week?
They slipped a new question into their monthly survey: “Is the property market vulnerable to a “significant correction” in prices?”
Turns out almost two thirds of the Australian population believe that it is!
A full 60% across the country. In the ACT it was up to 70%! (Guess a lot of public servants are feeling their jobs are pretty shaky right now.)
C’mon. Really? 60% of people believe there’s going to be crash. That’s the stat the property doom-sayers have jumped on. The property market is all an illusion. No one believes it’s real!
All those price gains in Sydney. It’s the emperor’s new clothes. Beneath all that 14% a year, he’s naked!
But me? I just don’t buy it. But RP data usually publish some pretty reliable stuff, so what do we make of it?
Well, I reckon it’s interesting, because I think there’s a few cognitive biases at work here, and as investors these are good things to be aware of.
The first is the ‘anchoring effect’.
Once upon a time, some psychologists did a study where they asked a few hundred people, one at a time, how old they thought Ghandi was when he died.
But before they asked the question, they presented each person with a fact. Half the group were told that the average life expectancy in India was 51. The other half were told that it was 74.
Both were false. It was actually around the 60s.
In a way, the fact isn’t all that relevant. If you actually knew how old Ghandi was when he died, then it’s completely irrelevant. But if you had to guess, you could come at it any number of ways.
You might try and remember how old he looked in the last photo you saw. You might try compare him to similar beings (Mother Theresa, Yoda).
But when people were presented with the fact, two things happened. First, it encouraged them to use a bench-mark adjustment process. That is, their thinking went something like, ‘Well, if the average age is 52, I reckon Ghandi probably lived longer than average (because he was a vegetarian and did meditation), but not all that much longer because he’s not super-human, so say, I don’t know, 59?’
People took the benchmark they were given, and then used some process of reasoning to make adjustments to it.
People did the best with the information they had, which for most people was nothing more than the fact they were given.
And so of course what they found was that the group that had been given the younger age had a much younger average guess than the group that was given the older stat.
The take home message is that when there isn’t a lot of information, people will reach out to whatever’s available, even if it isn’t that relevant, or accurate.
You see this all the time on those late night TV commercials.
“How much would you expect to pay???”
You never give it much thought because you know they’re about to tell you. But they know you’ve probably never thought about how much a ‘bedazzler’ is worth, or what a fair price for one is. At this moment, you’re completely ignorant, wondering what a fair price for one of these machines is.
But they don’t leave you there for long. If they did, you’d start comparing theoretical prices to how much value you might get out of it. “How much is it worth to me to have a bunch of sequins embossed on all my clothes?”
So then here come the numbers:
“How much would you expect to pay? $100, $200, $500??”
Suddenly you’ve now been anchored to their prices. They become you’re reference point. No matter that no one in their right mind would ever pay $500 for a bedazzler. Now that $500 is your reference point, when they tell you it’s only $49.99 if you call in the next 5 minutes, suddenly your mind believes that it’s actually very good value.
This is a very common technique. Have a look out for it. You’ll see it everywhere.
But coming back to the RP Data survey, when you ask people about ‘significant corrections’, you’ve anchored people to the idea of house prices crashing. You’ve brought to mind all the news stories they’ve ever seen about house prices falling, here and overseas.
‘Could it happen here? Sure, I guess so, I seem to remember lots of talk about it…’
I guarantee you that if you asked the exact same people ‘Do you think that prices will keep going up from here?’ you’d get some very bullish results.
The other reason why I’m sceptical about surveys like this, is because you never know what people are basing their answers on.
I remember during the election, the wags at The Chaser did a vox pop to show how stupid vox pops are. In one interview, they asked a young woman, covered in tatts:
“How would you rate the Prime Minister’s performance, out of 10?
“oh… 6.”
“What about out of 100?”
“oh, ah…. 85?”
Suddenly there’s a 15 percentage point jump in the PM’s approval rating, just because they changed the measurement scale.
In the same skit they also asked a bunch of people if they thought NSW should take part in Federation (which actually happened in 1901.) Several people thought that it was, ‘too soon.’
My point is, that if you ask people about things they have no idea about, don’t expect to get results that make much sense.
But at the end of the day, this makes me think that the buying window is still open. It’s seems pretty clear to me that prices will keep surging ahead from here.
But clearly not everyone’s on board with that idea. It seems that many people are still a bit nervous (and you can probably blame the media for that). But they’ll come round. Once they see the market go from strength to strength.
And then the nancy-never-jumps will decide it’s time to make their move too. But by then, this horse will have bolted.
David Flint says
wtf are you on about?
do you know what a non-sequitur is?
are you aware that Gandhi (note correct spelling) – was assissinated? what has that to do with life expectancy?
I tihnk you have to build credibibity before people will listen to you.. and this ain’t making it any better!
Brent says
Thank goodness Gandhi’s name is now being spelt correctly now David has pointed this out. I had no idea who was being discussed before his comments. Just wondering if someone can tell me what assissinated and credibibity mean.
Trent says
Brent, if you don’t watch out they’ll be asking you to join the chasers soon.
good pickup.
Ken. says
It’s a pity some wankers don’t look in the mirror before they criticize other people. If you don’t agree, just say so. There is no need to put the boot in. you are only showing the world how stupid you are. I personally had no problems with Ghandi, or Gandhi. I identified the person with who he was. What I did pick up was the spelling of the easy words, but why criticize, we all make mistakes. Have a beer or two and chill out. Cheers, Ken.
Rod says
To David flint ,
I think your missing the point here…. The story about ghandi was to make a point , a very good one for that matter. My sister and her partner have been procrastinating about buying property because they think its going to crash due to what they read in the media with no facts to back up there claims..meanwhile I have been profiting handsomely over the last 5 years due to the knowledge and research I have done. They have no knowledge whatsoever about the property market so guess what … They sit on the sidelines! Maybe you might be like them also and wake up one day to find life has passed you by and regret not making the decision to take action when you had the chance.
Rod
Wil says
Property NEVER crashes: Everybody needs a house to live in. And LAND? Hey,they ain’t mak’n any more of it. Nup property never crashes. Just ask the Japanese
bernie says
Properties go in circle like everything else.yes Australia needs a property correction.japan, europe and usa showed us already.the idea that a crash wont happen is based that a couple, both earn lots, have the ability 2service500 000 loan!
Facts r most relationships dont even last as long as the morgage duration and most couples ll have kids which brings it to 1income and 1more liability.
I bought few houses in vegas.tell the previous owners properties wont crash!
I paid20ish in the dollar to what they paid.
Australia is too expensive as it is.companies start closing down here.
Come on guys
Jean says
you buy right & it doesn’t matter what the country is doing. You buy wrong and you could go up the creek too. Now is right
Ben Dyett says
What’s going on with all the spelling mistakes?????? Luckily you guys are making plenty of money in property because you wouldn’t as teachers!! Then again, teachers don’t make much…….just look in the carpark of any school
Ken. says
Will, you are 100% correct. Property never crashes. Fools pay too much, and bigger fools sell at a loss. Other fools will need to buy a big packet of razor blades to keep cutting their long white beards, while waiting for house prices to crash and stay crashed. Ken.
Michelle says
Ha ha Ken, so true 🙂
Michael Austin says
Michael A says this. Mr Giaan is in the business of making a profit. What he makes that on is enirely dependant upon his choice. If you lot out there are interested in chasing a dollar then don’t put your hope (let’s call them eggs for you mature age folks) in one repository. John Giaan presents one option. He has prospered and you may too. But there is always more than ‘One way to skin a cat.’ I hope that Mr Giaan reads his blog. I wish him well. For me my choice is property over shares. I am going to plaigarise someone else here by providing my own advice to that of Mr Giaan’s, “Tread your own path.” My personal advice is this. There is many options with property whereby one can realise a capitl gain. Don’t be frightened and don’t be suckered into some scheme whereby you put a dollar or two into someone elses pocket. Review Mr Giaan’s advice. Make a choice you are happy with. Good fortune to you all. Michael
Michelle says
I totally agree. If you survey clueless people that don’t even have a clue about property market cycles, you will get unreliable information. I think the threat of another US recession is what is causing the majority of people concern. However, I have been researching property since May and I have been watching prices and auction clearing rates, both of which I have seen a rise here in Brisbane over the last couple of months. Its on the move and if people want to sit and procrastinate, that’s fine, it means there is more opportunity to get in before it really starts to move and people start to pick up on it (which by then it will be too late). Just purchased a neutral cash flow property with manufactured equity potential 20min from the CBD and plan on getting another over the next few months 😉
Nicosaurus says
Well done Michelle . Go for it. Keep up the great work.
Ken. says
Michelle, Cheers mate. Here’s to making a lot of money in the next 2 years. I’ve been telling everyone to get in today, as tomorrow may be too late. When this thing takes off, it will be like a rocket. I’ve always based my opinions and knowledge on the past. It has never failed anyone. Some people just think that they are some kind of a Prophet, and feel they have to preach doom and gloom. Cheers again, Ken.