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?
“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.