New research suggests that property investors may hold onto an asset in a declining market for longer than they should out of fear of making a loss. Such a decision can be especially financially damaging for highly leveraged investors who bought at the peak of the market with the expectation that prices would keep rising.
Another view is that as long as they can hold onto the property, there will likely be another lift cycle where prices will go beyond previous highs. Australia in general and certainly the major cities have tended to swing on a 5 – 7 year cycle.
In June’s Journal of Economic Psychology, Dr Daniel Richards, lecturer of Wealth Management at RMIT University, found that investors often held on too long in a falling market due to feelings of regret. Although the research focused primarily on investors in the stock market, Dr Richards said the findings held true for property.
Independent economist, Saul Eslake, said that although some of these investors would be better off selling up and realising any gains they’ve made, many won’t do it. “Selling is one of the many strategies that they ought to be at least contemplating seriously.”
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Domain figures show that most markets across Australia are either flat or declining. Sydney house prices fell 2.6 percent over the past quarter, with Brisbane falling 0.6 percent, Perth falling 2 percent and Darwin falling 7.5 per cent. Escaping the trend, Melbourne saw a rise of 0.1 percent, Adelaide and Canberra rose 0.8 percent and Hobart rose 2.7 percent, however doubts about any future strong price growth remain. CoreLogic figures also support this trend, with national dwelling values falling 0.1 percent in May – the first decline since 2012.
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