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9/22/2008

The housing bubble

Other than the genius of the best financial minds in printing worthless papers to be sold in the trillions of dollars, the basic ingredient in the American financial crisis is non other than the housing bubble. Property prices were allowed to run unchecked in parallel with more loans to those who cannot afford them. And when the bubble bursts, when the people no longer be able to afford the properties they could not afford in the first place, the house of cards crumbles. We are also creating the housing bubble here. Asset enhancement to make properties more expensive by the days. Great wealth creation. Great illusions will soon become great delusion. When the income is not rising, or shrinking, the runaway prices of properties are unsustainable. It is extremely hazardous to give loans in the hundreds of thousands and millions, at 80% or 90% of the property value. Even at 60% or 70% is risky when servicing such huge loans is dependent on the economy and the monthly salary. When the economy falters, when the income stops coming in, the dream house will vanish in the dream. The fundamentals of economics, of thrift and living within your means is an evergreen truth that one can ignore at your own risk. The American dream of living on future income, on borrowing, has come to an end. It is a miracle that it can go on for so long. The bubble has burst. The dream is shattered. The Americans will find it increasingly dependent on cheap Chinese products, not matter if the quality is not up to their expectation. That's what they can afford now.

6 comments:

Anonymous said...

We are creating a housing bubble here, but they never want to admit it.

Japan went through it and after more than a dacade and is still feeling the effects. The Japanese are the most adaptable and enterprising people and for them to languish that long is very telling.

The US is going through it now and God knows how long they will mire in it. The current bailout is doing nothing to mitigate the mortgage crisis, only helping the fat cats.

When our turn comes, and it surely will, the ones who sold the land and those who built the houses will be the only beneficiaries. Ordinary Singaporeans will be left with shattered dreams built on bubbles.

Matilah_Singapura said...

Do worry, if it crashes in S'pore, the govt will rescue you :-)

Anonymous said...

Oh yeah, a few bones and some feathers, after they have taken the meat and drumsticks. They will not let the losers die outright, because they need them to start all over again.

Mockingbird said...

can't see any sign of the property bubble in Singapore bursting anytime soon.

Prices of top end properties have softened. But that's not a property bubble burst.

Developers are merely delaying the launch of some of their high end properties.

redbean said...

the developers can keep telling the buyers that they have holding power. just play the wait and see game. don't buy.

Anonymous said...

The people who blow bubbles will never say the bubble is too big and will burst any time. Yeah, just keep on blowing and see who blinks first.