Why young investors are giving property the cold shoulder – Diana Clement

“The first that come to mind are opportunity cost and loss aversion. At a time when the stock market is booming, and property is dooming, it’s no surprise that people, especially young people, might have a bit of FOMO [fear of missing out].”

That fear used to be directed at the property boat, but is now reversed. “There’s a fear that if they don’t get on the AI investment train now, it will leave the station without them,” Turcu said.

“Whereas with property, it’s not clear to people if prices have reached the floor yet. It’s a lot scarier to buy into a market when it’s still moving down,” she said.

Then there’s the fear of losing money, aka loss aversion bias, which is much stronger than the joy of making money.

Next, there’s the herd, the powerful psychological pull to do what everyone else is doing. “A herd mentality bias is easy to fall into,” said Turcu. “We assume that everyone else must know something we don’t.”

The thought process becomes: if property prices are falling and people are struggling to sell, it must mean “there’s something bad happening that I don’t know about, so I shouldn’t risk it”, Turcu said. “And ‘if stock prices for these big AI companies are increasing and everyone is buying, there must be something good about this investment that I don’t really understand, so I should buy into it too’.

“The antidote is researching investment opportunities thoroughly, and not relying on the herd to tell you what investment is best for you,” Turcu said.

There is also a much more practical reason why property has trouble competing with shares for a young person’s dollar: it’s expensive to get started. The deposit, administrative costs and mortgage repayments can swallow a large chunk of income, and every dollar tied up in a house is a dollar that can’t be invested elsewhere.

“When taken together with opportunity cost, loss aversion, FOMO, and herd mentality biases and upfront costs … you can see why the property market is losing the battle in the short term,” she added.

But it may prove more expensive to wait. And those incredible returns on other investments won’t last forever, leaving some investors nursing big losses. That’s what happens in markets. Ask anyone who went through the crashes of 1987, 2000 and 2008, or anyone who sold out or switched funds in early 2020 and thought shares/funds were dead.

So is property worth buying? That’s your choice. I’ll give the final word to Turcu: “Housing is in a slump, but I don’t believe that property investing is dead. It’s just being outcompeted for a time.”

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