Wednesday, June 18, 2008

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Singapore Property - Lesson from US Property Market

Excerpts from article about what's happening in the US, but which we also have similarities...
Quote: But it may pay for buyers to wait. Many housing experts say that the worst-hit metro areas have even farther to fall, and could see total drops of as much as 50%. "The housing boom was unprecedented in U.S. history, and the correction will be as well." This correction was inevitable, home price gains had simply out-paced income by far too much to be sustained. Historically, home prices have averaged about four times wages. Whenever homes got significantly more expensive, people could not afford to buy and home prices fell back. But local price-to-income ratios are still out of whack even after steep price declines, which means prices have further to fall. "Bubble cities are now seeing fleeing employment conditions," he said. where many jobs were housing related, has been even more disastrous. Of course, there are plenty of wild cards that could affect home price trends, such as the election, Congressional legislation, unemployment, gas prices, and interest rates.

I think it pays for Singaporeans to wait also.

1. 2006-2007 spike is historic, and the fall will likely be so too.

2. Price gains have far outshot gains in income. The top 10% income is $6,700/month, or $80,000/year. 'Affordable' using 4x ratio would thus be $320k. A $1,000,000 condo (1200sqft at $900/sqft) is 12.5x salary. Expensive even for the 'rich' top 10%.

3. Its been said that our economy is boosted by the construction industry now. After all the projects complete and activity peaks over the next 3 years, jobs created in this sector will evaporate.

4. Our employment whilst still strong is expected to moderate.

5. Elections... Historically, election years have always been primed. Just look at the extraordinary length the US fed has gone through to prop up the economy... lending directly to banks, printing money, giving free cash to citizens to spend.... but what's going to happen AFTER the elections? Equations have to be balanced.

6. Interest rates... At near historic lows, have only one direction to go; up.

7. Oil prices.... Not expected to go down to pre-2006 levels for a long time, if ever.

8. Its not just US and Europe, with China's economy expected to slow, its contribution to global growth will decrease correspondingly. Demand for products and services on which Singapore depends on may also slow over the next few years.

9. I think the risks are biased to the downside rather than up, at least for the next 3 years.

10. And if prices do weaken, then property is no shield against inflation.... If price stays the same, then its no better than cash. If price declines (as is beginning to happen), then its worse than cash.

People who bought before the run-up, have definitely made money. But to advocate buyers go in now after the run up has already peaked, is disingenuous and most irresponsible.

-Posted by Anonymous, 17 June 2008

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May also want to read:
History of Singapore Property 1960 to 2008
Buy or Not Buy: How to decide amid mixed market signals
Smart Buyers, 10 reasons to wait
Property Price Index Graph Plotter & Online Property Valuation


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The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.

Smart Buyer :)