The (Un)affordability of Housing

I’ve been planning on posting this for a while now, but came across this article this past weekend, which provides the perfect entree (excerpt):

Property market bubble set to burst, says think tank

PETALING JAYA: The property bubble in Malaysia is set to burst, but the government must resist the temptation to intervene and allow market forces to coordinate supply and demand, says a think tank.

In an interview with FMT, the Institute for Democracy and Economic Affairs’ (IDEAS) senior fellow, Carmelo Ferlito explained the two “economic dynamics” which have resulted in the current property situation in the country, where the prices of homes are beyond the reach of most and the oversupply of such homes, has led to many being left unsold.

Figures from the National Property Information Centre (Napic) have indicated that as of the first quarter of 2017, some RM10.08 billion worth of residential units are unsold in Malaysia. This figure does not include serviced apartments, which have since 2015, been classified as commercial properties.

Jesse Colombo Smackdown Part II

Mr Bubble is at it again, but this time, I’ll leave it to someone more qualified to issue the rebuttal:

Is Singapore Headed to an Iceland Style Meltdown: Part I

The piece by Jesse Colombo asking whether Singapore is headed to an Icelandic style meltdown received a lot of attention but not a lot of analysis. I think it is important to examine not only the factual basis for the arguments put forth but also the bigger picture philosophical framework for predicting financial crises. Today in the first part, I will place the arguments in a type of philosophical framework and the biases we have with regards to economic and financial analysis….

You can read part II here.

For what it’s worth, I’d agree that Singapore’s property markets are frothy, credit is expanding way too fast, and external exposure uncomfortably high. But I’d also agree with Prof Balding – it’s a stretch to say this will presage a meltdown.

I’d be far more concerned about structural issues in Singapore’s economy – the ageing society; the lack of productivity growth that has had to be papered over by immigration; the low provision of public goods; the high inequality of wealth and income. All these are probably more important – and immediate – concerns, than a putative bubble about to burst.

What Explains House Price Booms

Keeping to the theme from last week, there’s a new paper on house price booms in the latest NBER working paper roundup (abstract):

What Explains House Price Booms?: History and Empirical Evidence
Michael D. Bordo, John Landon-Lane

In this paper we investigate the relationship between loose monetary policy, low inflation, and easy bank credit with house price booms. Using a panel of 11 OECD countries from 1920 to 2011 we estimate a panel VAR in order to identify shocks that can be interpreted as loose monetary policy shocks, low inflation shocks, bank credit shocks and house price shocks. We show that loose monetary policy played an important role in housing booms along with the other shocks. We show that during boom periods there is a heightened impact of all three “policy” shocks with the bank credit shock playing an important role. However, when we look at individual house price boom episodes the cause of the price boom is not so clear. The evidence suggests that the house price boom that occurred in the US during the 1990s and 2000s was not due to easy bank credit. Loose monetary policy (as well as low inflation) played some role but the residual which may be picking up other factors such as financial innovation and the shadow banking system is the most important shock. This result is robust to many alternative specifications.

The Trouble With Bubbles (Warning: Wonkish Post)

How can you tell you’re in an asset bubble? How can anyone not look at this graph and say that we’re not (index numbers; 2000=100):

But I couldn’t and still can’t, at least not by any objective measure. Here’s a look at why.

How To Spin With Statistics: Compare And Contrast

From Jesse Colombo to the Dallas Fed (excerpt):

Asia Recalls 1997 Crisis as Investors Await Fed Tapering

The 2007–09 global financial crisis triggered unprecedented central bank policy intervention in the U.S. and elsewhere. The Federal Reserve, after cutting short-term interest rates to near zero, embarked upon three rounds of unconventional monetary policy known as quantitative easing, or QE. These measures involve the purchase of long-term securities and aim to stimulate the economy by lowering long-term borrowing costs…

How To Spin With Statistics

Here’s a model article for all budding analysts and pundits out there (excerpt):

Malaise Is Ahead For Malaysia's Bubble Economy

I recently wrote about how Indonesia’s economy has devolved into a classic credit and asset bubble-driven growth story, and its neighbor Malaysia is on the same path along with most other Southeast Asian economies, which are part of the overall emerging markets bubble that I have been warning about in the last couple of years.

Ringgit Getting You Down? Don’t Panic

The stock market is losing ground, the Ringgit is being hammered, interest rates are slowly rising, inflation is increasing, and growth is anaemic. Not a whole lot of good news lately.

Don’t Panic.

The market selldown is general; it’s happening across the region and pretty much affecting most emerging markets. Malaysia is one of many, and we’re not being singled out. Just as expansionary monetary policy in advanced economies and greater global liquidity helped support emerging markets in 2010-2011, we’re seeing a pullback as the Fed begins signalling its willingness to reverse course.

Don’t Panic.

LTV and DTI: Taming Housing Speculation

Now that BNM’s revised guidelines on consumer lending are now in force, the question arises as to how effective they will be. The reduced loan to value (LTV) ratio of 70% for a third housing loan (implemented in 2011) appears to have had some effect on housing speculation, if house prices are any indicator – price increases have moderated across the board in 3Q 2011.

In KL for instance, house prices increased 7.9% in 3Q 2011, compared to 12.7% in 2Q 2011. The problem is 7.9% is still a fairly fast pace of appreciation – the average for the past decade (2001-2010) is just 3.5%.

So based on the new guidelines, credit decisions will take into account net income as against gross income, as well as limits on the debt to income (DTI) ratio. Will that work?

It’s A Woman’s World

From this weekend’s news (excerpt):

Why it pays to invest like a woman

DID you ever think testosterone could be a setback in successful investing, risk taking and trading among other aspects? According to a recent research, apparently too much of it is detrimental.

A man with an inlfated [sic] ego who asserts his alpha male dominance isn't a fantastic trader or investor.

The Motley Fool's Louann Lofton who authored the book: Warren Buffett Invests Like A Girl And Why You Should, Too, pointed out that psychologists and scientists concurred that women have the right temperament to help them achieve long-term success in the market.

Weighing Gold

At The Economist’s Free Exchange blog, A.D. tries to figure out whether gold is in a bubble (excerpt):

Turning gold into dross

WHILE equity and bond markets have remained relatively sanguine regarding the impasse in negotiations on America's debt ceiling, gold nevertheless achieved another (nominal) high today, at $1,622. That’s one more milestone in an extraordinary run that began over a decade ago. As of Monday, gold’s 10-year annualised real return was 16.8%. By comparison, American stocks managed a return of just 14.8% during the 1990s, in a roaring bull market.