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Dear Readers,

Here’s a question: do you think it’s a good thing or a bad thing that governments everywhere get involved in free markets?

I’m talking specifically about the real estate market here.

The historical evidence of them doing so and being successful is, at best, patchy.

At worst, they cause sectors of the economy, or even the whole economy, to enter recession.

What is astonishing though, is they don’t seem to ever learn their lessons. Roughly every 18 to 20 years or so, government meddling always ends badly.

And here we are, yet again, and those policies are beginning to unravel fast. Affected by forces no government can overcome and hurting many brand-new homeowners.

Maybe even yourself!

Believe me, no new homeowner who has brought in the last 6 to 12 months ever wants to read the following headline.
Source – Macrobusiness
It’s a stark headline. So, what precisely is going on with these hapless first home buyers?
28 days later

First things first. Let us supply some context: what exactly is “negative equity”?

In a real estate context, it is when the house you own is worth less than the amount of the loan outstanding against it. This means the bit that you own is worth less than zero, because even if you sold your home, you’d still owe something to the bank.

The bank who lent you the money now has a big problem.

To a bank, your home is their collateral upon which the mortgage, should the owner break their covenant and be forced to sell, is how they get their money back. A home that is worth less than the loan now means the bank is sitting on a losing bet.

So, just how has Macrobusiness concluded that first home buyers are holding a negative equity asset?

From the above article:

First home buyers (FHBs) who entered the market recently with very small deposits under Labor’s 5% deposit scheme are now the group most exposed to rising interest rates and falling home prices, especially if they purchased in Sydney or Melbourne.

Three RBA rate hikes in six months have pushed FHB mortgage delinquencies to a seven‑month high, according to Equifax, with 90‑day arrears among FHBs nearly double those of other borrowers.

They also included the following chart.
Source – Macrobusiness

Let’s bring it all together now. The article headline said first home buyers were left stranded in negative equity. Later in the article, they specifically mention the Labor’s 5% deposit scheme.

This is a classic example of how most governments worldwide like to get involved in the free market. Originally introduced by the then ruling coalition government in 2022, it was called the “First Home Loan Deposit Scheme”, with restrictions on income limits and annual quotas of applications.

After the current Labour government took control, they announced an expansion of the program, uncapped the number of places, removed income limits, and significantly raised property price limits to match more realistic market values. It was officially rolled out in October 2025, making the 5% deposit and LMI-free guarantee available to all first home buyers without any income limits.

In other words, you went into your home purchase with the government as your partner, who enabled you to qualify for a 95% LVR, no LMI (Lenders Mortgage Insurance) which is normally mandatory for those buying with less than 20% deposit, with the new buyer only needing a 5% deposit.

The other 15% of the deposit was guaranteed by the government.

What intrigues me about the chart I included above is what it shows about the 28-day change in prices for the top five cities in Australia, particularly if you start from October 2025.

Except for Perth, the rest started to plateau and then fall. And those falls have accelerated up to May 2025.

Another way to look at it is, since the new First Home Loan Deposit Scheme rolled out in October, every buyer who used this scheme to get in has potentially seen a slow but steady decline in their small amount of equity.

In that same period, the Australian central bank has raised interest rates three times, driving FHB delinquencies to a seven-month high with 90-day arrears amongst FHB buyers double those of normal mortgage borrowers.

And this is where the problems start to mount.
The winner’s curse

Governments can drive behaviour that is detrimental to the long-term future of the youngest and most exposed home buyers. The expansion of the FHB 5% Deposit Scheme triggered a surge in applications, particularly among 18–25‑year‑olds.

And the figures now being posted here are stark examples of this.

If you used this scheme to buy your first home, here is the triple whammy which you’ve just been hit with.

Not only is it likely that your 5% equity on your home disappeared since October, but you’ve also suffered three straight interest rate moves higher since then and you have the pleasure of buying when property prices are at historic highs, necessitating an enormous mortgage.

This is clearly too much. The cracks are appearing, and they likely will get wider as time progresses. “The challenge is for buyers who entered with only a 5% deposit — if they are forced to sell, there is a strong chance the money they originally put into the property may no longer be there”, Equifax Chief Solutions Officer Kevin James said.

But fear not! The Labour government have seen what’s happening and has leapt into the market – once again – to save them by announcing in the recent May budget changes to negative gearing and capital gains tax on property.

This has hit the market like a lead balloon.
Source – Financial Times

Westpac Bank announced their loans to investors have dropped 20% since the May budget and auction clearance rates have fallen off a cliff. If you want to be voted out of office, making every single homeowner in the country poorer has never failed to see you given the boot.

But it is the timing of all this that matters. These proud new young homeowners must feel like they are cursed, rather than any kind of winner in the real estate race.

If only someone, anyone, could have warned them well beforehand? Maybe go to great lengths to explain that this phase in the real estate cycle is called the Winner’s Curse for a damn good reason.

Arm them with the right knowledge so they can apply best judgement when it comes to making as informed a decision as possible for what is their largest ever purchase in their lives.

It’s too late for them now, but not for you.

Because things are not going to get better from here. Never has it been more important to be informed and prepared for what is to come. Have I not just shown you the price for not doing this?

So, start that journey right now with a membership to the Boom Bust Bulletin (BBB).

Use our monthly editions and weekly video postcards to turbocharge your research into the land markets, its timing, and why for over 220 years now this same cycle continues to repeat.

Long-term BBB members KNEW precisely what this time in the cycle meant. They were aware you simply must not go over-leveraged into assets used for speculation, like real estate.

It is my contention that all governments are plain stupid, even though I appreciate they don’t know their land price history. But for the Australian government there really is no excuse.

You do not, cannot, address a supply-side issue by simultaneously increasing demand for it.

Stupid.

And now, their powder keg is almost empty. I don’t believe there is literally any more they could do to entice new home buyers into the markets – the government is tapped out.

And it’s our youngest and brightest who now are left to carry the can.

Give yourself and your family the head start you deserve.

This is but the beginning of the end.

Get ready, and sign up – now!

Darren J Wilson
and your Property Sharemarket Economics Team

P.P.S – Find us on Twitter here and go to our Facebook page here. This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.