Bubble? Depends on where and how you look

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#1
This was in the BT yesterday.

Basically a refute of the articles that appeared in Forbes. What I found interesting was the discussion of the Median home price to Median Earnings ratio. There was a table that accompanied the article which I'm unable to reproduce here.

I'm in agreement with this journalist. Particularly about the points where most Singaporeans live in HDB. It's probably going to be their and foreigners' Investment properties that will take a big hit if interest rates rise and the economy goes into a funk.

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There's no housing bubble in Singapore, but only if people buy within their means, says CAI HAOXIANG

A BUBBLE can provoke fear or outrage.

Fear, because if a speculative bubble rising on nothing but hot air bursts, the resulting sudden plunge in asset values can bode ill for the economy and cause unemployment and personal hardship. Outrage, because the continued existence of such a bubble implies the failure of regulators to protect the man on the street from rushing headlong towards disaster.

To say a bubble exists in Singapore means that there is a lack of control by the powers that be, which is anathema to the government's perception of itself as a forward-looking architect of a well-planned and orderly economy.

So one can very well imagine the reaction of Singapore's central bank when Jesse Colombo, a French-born, American independent economic analyst who just turned 28, wrote a widely circulated column last Monday warning that there is not just a low interest rate-fuelled credit bubble here, but also a residential property bubble, construction bubble, financial-sector bubble, wealth bubble and population bubble.

Mr Colombo did not only see bubbles all around Singapore and surrounding emerging markets, he went on to argue that the foundations of the Republic's wealth - sovereign wealth funds Temasek Holdings and GIC - were at stake, and that Singapore's current prosperity was illusory.

The Monetary Authority of Singapore's (MAS) response was swift.

"Singapore is not facing a credit bubble that puts the country or its banking system at any risk of crisis," the central bank said last Tuesday evening.

While MAS said that unusually low interest rates have caused credit growth and a rise in property prices in Singapore and other countries, the government has "taken decisive steps to cool property demand and prevent excessive leverage".

MAS added that the property market is stabilising, new housing loans have been declining, household balance sheets are strong, and the financial system here is strong, as reflected by Singapore's AAA rating from major credit rating agencies.

Mr Colombo replied that the MAS was in denial, just like other governments in the region. Household balance sheets might be strong now when interest rates are low, but not so when they rise, he said.

Low interest rates might stay for a few more years and delay the burst of Singapore and the region's wealth bubble, he said. But "it also means that the city-state's asset and credit bubbles are likely to grow even larger and more threatening than they currently are".

What is a bubble?

Bubbles are a nebulous concept. There is a difference between the temporary insanity of a bubble and the normal ups and downs of a market, when assets are just overpriced. Hence, to decide whether Singapore is indeed caught up in a bubble, it is important first of all to define what a bubble is.

Bubbles have a psychological element that make them dangerous. The building of a bubble requires a kind of spontaneous optimism characterised by British economist John Maynard Keynes as "animal spirits", and later by former Fed chairman Alan Greenspan as "irrational exuberance". While property showrooms may still be packed here, an element of caution has crept in, with the property market by all accounts slowing down. The animal spirits are subsiding, in no small part due to a debt servicing framework introduced in mid-2013.

In a bubble situation, prices of assets deviate significantly from their fundamental values. What constitutes "significant" is arguable. Given sufficient historical data, a possible starting point for a bubble call is when financial ratios deviate from their long-term averages by, say, more than two standard deviations.

A recent instance of a bubble was the dot-com boom of the late 1990s. Then, the long-term cyclically adjusted price to earnings (PE) ratios of America's S&P 500 index went up to more than 40 times, more than three standard deviations from the 130-year average of 16.5 times and even the post-war average of 18.4 times. In Singapore, the Straits Times Index (STI) is trading at roughly or just under its long-term average of about 15 times earnings. Using our definition, we can safely say there is no bubble in our equity markets.

Moving on to property, a common indicator of value is the ratio of median house prices to median household yearly incomes. By various accounts, this ratio peaked in America in 2006, almost hitting five times and deviating more than two standard deviations from its long-term average of about 3.5 times. Median household incomes were around US$50,000 then, so median house prices were about US$250,000.

In Singapore, one might very well ask if there is a residential property market bubble. In the HDB resale market and the private property market, average prices have doubled from a decade ago. Incomes have increased by only about 60 to 70 per cent.

Mr Colombo cited a statistic from cost-of-living comparison website Numbeo that showed Singapore's price-to-income ratio at 25 times, which is the third-highest in the world. On the surface, the number makes sense: The typical price of a suburban condominium is $1.2 million, with the implied median household income at $48,000.

These statistics are flawed, however. The latest household income data show that households earning $48,000 a year belong to the bottom third of income earners, who live in much cheaper, subsidised HDB flats anyway.

More than 80 per cent of Singaporeans live in HDB flats. This puts those who live in condos in the top fifth of wage earners. One cannot benchmark a typical Singaporean to a condo unit.

There should thus be at least two separate price-to-income ratios for Singapore when measuring whether the market is in a bubble: one for the private property market, and others for various segments of the HDB market.

Assuming the top fifth of households buy condos, the next fifth buy five-room HDB flats, and so on, back of the envelope calculations using latest data show the price-to-income ratio for HDB five-room flats at about 4.2 times, and 4.3 times for condos - both very far from the statistic of 25 times used in Mr Colombo's piece.

By comparison, at the property market trough 10 years ago, the equivalent ratios would be about 3.3 times for five-room flats and 3.6 times for condos.

More data could be crunched to find out whether Singapore's price-to-income ratio differs significantly, or outrageously, from historical averages. But that does not seem to be the case from an initial reading of the data - with a caveat that people must buy within their means.

Basically, between 2003 and now, homes cost about 0.6 to one year's worth of household income more at the most, from trough to peak. This means people have to take two to three more years to repay their loans, assuming they use a third of their incomes every year to do so. If they only use a fifth of their incomes, then they will take three to five years more.

If Singaporeans buy property within their means, three or four extra years of paying the mortgage, given later retirement ages and longer lives, seem to be reasonable.

Interesting tidbits can be gleaned from the analysis. If people aim beyond their wage bracket, house prices become pricey. A typical median-income household buying a five-room resale flat, or even an 81st to 90th percentile household buying a suburban condo, will see their price-to-income ratio shoot up from three-plus to six times - which is arguably unsustainable. If a family can only use 20 to 30 per cent of its income to pay the mortgage, this easily means an extra 10 years of work.

It is therefore not surprising that with increased expectations, even the middle and upper middle-income groups would complain that houses have become unaffordable. Going by the data, the average Singaporean household can aim for a $500,000, four-room resale flat to keep the affordability ratio within four times annual income.

Mr Colombo is not wrong in warning Singapore of the dangers of rising asset prices, if they are not backed by productivity gains or economic growth.

However, the situation confronting Singapore's residential property market now is more inflated expectations and less runaway prices.

Commentators pointing out numerical increases in any statistic should define what makes something a bubble and what does not. Overusing the word can obfuscate rather than illuminate.

haoxiang@sph.com.sg
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#2
http://hkm.appledaily.com/detail.php?gui...e=20140122

港人供樓全球最苦

香港樓全球最惡頂 市民︰真係痴線嫁
【本報綜合報道】香港成為全球樓價最難負擔地區。最新國際樓價負擔能力報告顯示,本港樓價中位數為家庭入息中位數的14.9倍,即全家要14.9年不吃不喝才可以供甩層樓,數字亦為連續四年稱冠;《經濟學人》早前報告則顯示,本港樓市泡沫指數蟬聯全球之最,都反映本港樓價貴得驚人。

美國研究機構Demographia公佈年度國際樓價負擔能力報告(Demographia International Housing Affordability Survey),該報告研究9個國家中360個城市,以當地的住宅價格與家庭入息中位數比較,按比率高低分為四級:3倍或以下為可負擔級別,3.1至4.0倍為頗難負擔級別,4.1至5.0倍為很難負擔級別,5.1倍或以上為極難負擔級別。

■港人供樓負擔比率冠全球,而且數字年年遞增,供樓一族年年「加辛」。 朱永倫攝
負擔比率連升四年
該報告自2011年度開始加入香港數據,4年來香港樓價不論按國家還是按城市分類,負擔比率均穩佔榜首,而且數字年年遞增。最新報告顯示,截至去年第三季,香港樓價負擔比率為14.9倍,而之前三年的比率分別為13.5倍、12.6倍及11.4倍,反映供樓一族年年「加辛」。

在9個主要國家或地區當中,香港比率遙遙領先,澳洲及新西蘭並列第二,兩個國家比率均為5.5倍;新加坡比率為5.1倍,緊隨其後。四個地區均屬極難負擔級別。按所有城市分類,香港亦排第一,溫哥華排名第二,比率為10.3倍;檀香山排名第三,比率為9.4倍。

香港樓價中位數為402.4萬元,家庭入息中位數為27萬元;新樓平均面積不足500平方呎,為9個國家中最小,美國則為最大;而香港的平均呎價為美國的20倍。

辣招後樓價仍向上
報告指,不少研究均顯示,香港樓價因土地用途限制而被拉高。另亦有分析則指,受中國內地的買家帶動,及低息環境影響,香港樓市熾熱,樓價自2009年至今已升值逾倍,憂慮泡沫正在醞釀。

事實上,與香港環境相近的新加坡,樓價負擔比率遠低於香港。新加坡樓價中位數為43.8萬坡元(約265.5萬港元),家庭入息中位數為8.6萬坡元(約52.1萬港元),負擔比率為5.1倍,新樓平均面積在9個國家中排第七,面積大過英國及香港,平均呎價為美國的3.5倍

值得注意的是,即使去年政府連番出招遏止樓市炒風,本港樓價仍有升無跌。《經濟學人》於月初公佈樓價指數便顯示,截至去年11月底的一年,香港樓價上升9.7%,升幅為23個國家中排名第三。該雜誌又以物業租金回報,相較歷史平均值的變化作為泡沫指標,本港樓價較歷史平均數高81%,雖較去年第三季的84%稍為回落,但仍遠超其他地區。

不過,由於香港有大量人口入住公屋,加上稅率較其他地區為低,僅以樓市中位數及家庭入息中位數作比較,未必能真正反映市場實況。

【市民心聲】
只租到廁所

李小姐表示現時樓價十分昂貴,指「就算租都淨係租到個廁所!」她現時租住北角,租金逾2萬元,佔其收入的六成。

樓價很合理
現年17歲、與家人同住的關先生表示,香港樓價2萬多元一呎很合理,並認為現時無能力置業,但將來會有。
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
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#3
Haoxiang's article is heavily biased. Hence, it is not a good arguement. Totally one sided.

From the onset Haoxiang denounces colombo's article based on his age. Why would you need to mention that he is 28 years old? Are not the facts more important?

Regardless, there is one big big assumption that Haoxiang has made in the arguement. He assumed that living in a condo = owning a condo. I do know a few people whose ICs shows that they are living in HDBs but own one or two private apartments. And I think it is fairly common for people to do that. In addition, the apartment may not be ready yet, hence, they cannot live in a condo yet.

If he takes this into consideration, his whole arguement would just crumble.
www.joetojones.com - Helping the average Joe find the winning companies to invest in.
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#4
(23-01-2014, 09:52 AM)natnavi Wrote: Haoxiang's article is heavily biased. Hence, it is not a good arguement. Totally one sided.

From the onset Haoxiang denounces colombo's article based on his age. Why would you need to mention that he is 28 years old? Are not the facts more important?

Regardless, there is one big big assumption that Haoxiang has made in the arguement. He assumed that living in a condo = owning a condo. I do know a few people whose ICs shows that they are living in HDBs but own one or two private apartments. And I think it is fairly common for people to do that. In addition, the apartment may not be ready yet, hence, they cannot live in a condo yet.

If he takes this into consideration, his whole arguement would just crumble.

While you say the BT article is one-sided, I'm not sure if you are also falling into the same biasness when make some observations without stating facts. Such as:

"I do know a few people whose ICs shows that they are living in HDBs but own one or two private apartments. And I think it is fairly common for people to do that." You know a few and then suddenly it becomes common? How common is common? 1 in 3 households? 1 in 2? Is it possible that it may be your perception instead of a fact?

Personally I do not find this article biased.
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#5
what haoxing wasn't clear on his price to income ratio for hdb flats was perhaps he didn't specify is it for resale hdb market or new bto hdb flat mkt?
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