Do you believe this chart?
I don’t. Not for a second.
I want to believe it. I fear that several Australian property markets are in the grip of something that starts with a ‘B’ and ends with an ‘UBBLE’. Several people I follow and admire on Twitter retweeted the chart. It was derived from a monthly survey by Digital Finance Analytics of around 26,000 households. That sure sounds statistically significant to me. A unprecedented increase in lending by parents (the so-called Bank of Mum and Dad) to First Time Buyers (FTB) of Australian property would be supportive of the bubble thesis.
But we always must be on guard for confirmation bias in our thinking.
If I’m reading it correctly, this chart is making a rather extraordinary claim.
Bank of Mum and Dad loans up 4,300%?
It suggests that the percentage of first time buyers getting help via a loan from the Bank of Mum and Dad has risen from (I make it about) 4% in mid-2010 to about 52% today, a 13-fold increase. Meanwhile, the average amount of help has risen from perhaps $25,000 to $83,397, a 3.3-fold increase.
A 3.3-fold increase on top of a 13-fold increase? That suggests a roughly 43-fold increase in the amount of money being lent by parents to their first home purchasing kids. That’s an awful big change in just 6 years.
Of course, there are shifts in First Time Buyer participation rate. Changes to the number and size of annual transactions make that calculation somewhat inaccurate. But these things are not THAT volatile.
A 43x increase in the amount of lending by the Bank of Mum and Dad to help their kids get into complete hock with the bank? It doesn’t pass the sniff test.
I don’t have access to the survey or enough data to add this one to my Statistical Buggery series. But there’s very likely either a mistake in my understanding of what the chart suggests, or a giant hole in the compilation methodology. Either way, I won’t retweet it for now.
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