The Melbourne Herald Sun has reported on research from RateCity, showing in the 12 months to July, 40,000 fewer first home buyers entered the property market compared to the previous 12 months. This has seen mortgage lending fall some $11 billion dollars, at a time when housing costs were approximately the same.
Earlier this year, influential businessman Dick Smith told the weekend Australian Financial Review “I suggest to people who have big borrowings on a house, it’s all a Ponzi scheme”. A Ponzi scheme provides returns to investors from money paid by subsequent investors, i.e. the property market requires new entrants (‘Greater Fools’) to pay more for housing than the previous person, so the scheme can keep operating (house prices continue to rise).
As Ponzi schemes don’t make actual real profits, and continually requires new entrants, they normally collapse when there are fewer newer players entering the scheme.
» First-home buyers drop in past year – Herald Sun, 27th September 2011.