It seems that there will be extremely difficult times ahead for the USA. The Federal Housing Agency insures the mortgages on many homes. They are facing a big deficit and need to be bailed out by the Government. Wow! http://www.cnbc.com//id/45305350
If we look at the problem of the housing market in the USA, the lesson is that property prices should not be allowed to go up too high - as it will eventually have to burst. A good benchmark in the past is that property prices should be 3 years of the average income of the main bread winner (and excludes the income of the spouse). The USA has allowed the property prices to go up under a deregulated environment - and is now suffering the pain of adjustment.
The situation in Singapore is worse, as our property prices - in relation to the average income - is worse than USA. It is now being propped up by foreign buying - but we cannot count on this source of support for a long time. (Note: Dubai was in a similar situation with its property market at a high level due to foreign funds, but it has now burst.)
If we look at the problem of the housing market in the USA, the lesson is that property prices should not be allowed to go up too high - as it will eventually have to burst. A good benchmark in the past is that property prices should be 3 years of the average income of the main bread winner (and excludes the income of the spouse). The USA has allowed the property prices to go up under a deregulated environment - and is now suffering the pain of adjustment.
The situation in Singapore is worse, as our property prices - in relation to the average income - is worse than USA. It is now being propped up by foreign buying - but we cannot count on this source of support for a long time. (Note: Dubai was in a similar situation with its property market at a high level due to foreign funds, but it has now burst.)
Yes, comfortable house for four people should be priced within reach (3-5 years of annual income) for majority of the population.
ReplyDeleteThen wait for it to burst.
ReplyDeleteThe people can't do anything. The Govt wants to make money by selling land to the highest bidder, and recently they seem to be in a hurry, before the bubble burst, by which time, their coffers are already full. You die your business.
America has mortgage insurance, i.e. the insurer will pay the balance of the mortage, or the loss incurred by the bank, when the borrower defaults. This has led to big deficits, and possibly insolvency, of the insurers. Is mortgage insurance a good or bad thing?
ReplyDeleteMy view is that it is a bad thing and is not suitable for insurance - as the risk of default can be catastrophic, i.e. too many claims caused byu the same event.
We need a better way to manage this type of risk.