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https://propertysoul.com/2016/11/17/housing-market-collapses/
When the housing market collapses
November 17, 2016
https://propertysoul.files.wordpress.com/2016/11/big_short2.jpg
Remember the infamous Fannie Mae and Freddie Mac that kick-started the last financial crisis?
Last month hedge fund Bayview Financial bundled their junk securities into $118 million new bonds. Fitch Rating immediately stamped it with A- for investment grade.
Didn’t they do the same for subprime mortgage bonds that were once top-rated AAA debts before the US housing bubble burst?
This is just the start. There is a total of $6 trillion US government-backed mortgage bonds waiting to be offloaded to the investors. Trump is keen to market these mortgage bonds to Wall Street investors at dirt cheap prices.
Well, whether this is rock solid or a time bomb, only time will tell.
The big short on loan defaults
We tend to have selective amnesia for painful lessons from bad investment. When the market crashes, everyone feels the pain. We mourn and shed tears. But when everything’s over, it is soon forgotten.
Remember how the 2008 subprime crisis started?
When housing prices kept spiraling, there were less buyers who could afford the deposit, and even less people with well-paid jobs who could pay the mortgage.
To keep the profit machine rolling, non-performing housing debts were packaged into mortgage bonds stamped with triple AAA ratings. With two percent commission for selling these toxic bonds, the big banks made billions and billions of money. More and more risky mortgages were loaded into these worthless bonds. The vicious cycle continued.
https://propertysoul.files.wordpress.com/2016/11/big_short.jpg
The 2015 Big Short movie is based on a true story in Michael Lewis’ book The Big Short: Inside the Doomsday Machine.
A group of Wall Street gurus saw the subprime loans on the brink of default and planned to short the housing market by putting funds into credit default swaps. They are not only betting against the overheated housing market, but the whole US economy and the entire world’s economy.
“I am standing in front of a burning house. And I’m offering you fire insurance on it.”
“The bank got greedy and we can profit off of their stupidity.”
“How can the banks let this happen? It’s fueled by stupidity.”
“But that’s not stupidity, that’s fraud.”
“Tell me the difference between stupid and illegal and I’ll have my wife’s brother arrested.”
Give them the rating they paid for
All the bankers and financial analysts turned a blind eye to the risky loans and sketchy mortgages. And when defaults have gone through the roof, major bond-rating companies still insist on maintaining their AAA ratings on the failing bonds. Because it is ‘not in their interests to have the ratings changed’.
“The ratings agencies, the banks, the government, they’re all asleep at the wheel?”
“Charlie and Jamie had always sort of assumed that there was some grown-up in charge of the financial system whom they had never met; now, they saw there was not.”
“The market might have learned a simple lesson: Don’t make loans to people who can’t repay them. Instead it learned a complicated one: You can keep on making these loans, just don’t keep them on your books. Make the loans, then sell them off to the fixed income departments of big Wall Street investment banks, which will in turn package them into bonds and sell them to investors.”
As John Maynard Kaynes said, “The market can stay irrational longer than you can stay solvent.”
Let the buyers foot the bill
What is the worst thing that can happen after you bought a property? The property market crashes? No, not yet.
In June, Hong Kong’s largest developer Sun Hung Kai offered buyers of a mortgages as high as 120 percent of a home’s value if they are willing to pledge another property that they already own.
In early November, the Hong Kong government raised buyer stamp duties to between 23.5 and 30 percent. Home prices are expected to slump. Buyers who took up Sun Hung Kai’s ‘special offer’ earlier are now risk losing their own home if they default.
Before the subprime crisis, US home buyers were offered piggyback loans with first mortgage, second mortgage and deposit in the ratios of 80:10:10, 80:15:5 or 80:20:0. In the last case, borrowers basically could buy any property without making a single cent of deposit. After the market tanked, many home buyers ended up owing the bank money even after losing their homes.
“A thought crossed his mind: How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans.”
“We’re helping the consumer. Because we’re taking him out of his high interest rate credit card debt and putting him into lower interest rate mortgage debt.”
“With stagnant wages and booming consumption, the cash-strapped American masses had a virtually unlimited demand for loans but an uncertain ability to repay them.”
“Complicated financial stuff was being dreamed up for the sole purpose of lending money to people who could never repay it.”
Someone’s got to pay the price
What is the worst thing that can happen to the property market? Cooling measures? Market oversupply? Price corrections?
The biggest nightmare in any property market is the burst of the housing bubble. Because once that happens, even when government lifts all cooling measure; developers clear units at rock bottom prices; and prices drop to a ridiculous level, there will be no taker.
Because bad debts are everywhere. Fire sales are everywhere. Negative equities are everywhere. The banks are forced to absorb the bad debts. Even printing of more money cannot save the market.
You can’t end such a big problem with no pain. People need to pay a price for their mistake. When somebody makes a mistake, someone else is going to pay for it.
“Success was individual achievement; failure was a social problem.”
“If we’re right, people lose homes. People lose jobs. People lose retirement savings, people lose pensions. You know what I hate about f*cking banking? It reduces people to numbers — ever 1% unemployment goes up, 40,000 people die, did you know that?”
“I have a feeling, in a few years people are going to be doing what they always do when the economy tanks. They will be blaming immigrants and poor people.”
“When the dust settled from the collapse, 5 trillion dollars in pension money, real estate value, 401K, savings, and bonds had disappeared. 8 million people lost their jobs. 6 million lost their homes. And that was just in the USA.”
For all that has happened, do you think the world has learned anything?
Don't be silly. There are still a dozen measures, none of which have been removed. Just a tweak to help refinancing mortgagees.
A dozen CMs removed have no effect on market? This is Singapore you know?
https://propertysoul.com/2016/11/17/housing-market-collapses/
When the housing market collapses
November 17, 2016
https://propertysoul.files.wordpress.com/2016/11/big_short2.jpg
Remember the infamous Fannie Mae and Freddie Mac that kick-started the last financial crisis?
Last month hedge fund Bayview Financial bundled their junk securities into $118 million new bonds. Fitch Rating immediately stamped it with A- for investment grade.
Didn’t they do the same for subprime mortgage bonds that were once top-rated AAA debts before the US housing bubble burst?
This is just the start. There is a total of $6 trillion US government-backed mortgage bonds waiting to be offloaded to the investors. Trump is keen to market these mortgage bonds to Wall Street investors at dirt cheap prices.
Well, whether this is rock solid or a time bomb, only time will tell.
The big short on loan defaults
We tend to have selective amnesia for painful lessons from bad investment. When the market crashes, everyone feels the pain. We mourn and shed tears. But when everything’s over, it is soon forgotten.
Remember how the 2008 subprime crisis started?
When housing prices kept spiraling, there were less buyers who could afford the deposit, and even less people with well-paid jobs who could pay the mortgage.
To keep the profit machine rolling, non-performing housing debts were packaged into mortgage bonds stamped with triple AAA ratings. With two percent commission for selling these toxic bonds, the big banks made billions and billions of money. More and more risky mortgages were loaded into these worthless bonds. The vicious cycle continued.
https://propertysoul.files.wordpress.com/2016/11/big_short.jpg
The 2015 Big Short movie is based on a true story in Michael Lewis’ book The Big Short: Inside the Doomsday Machine.
A group of Wall Street gurus saw the subprime loans on the brink of default and planned to short the housing market by putting funds into credit default swaps. They are not only betting against the overheated housing market, but the whole US economy and the entire world’s economy.
“I am standing in front of a burning house. And I’m offering you fire insurance on it.”
“The bank got greedy and we can profit off of their stupidity.”
“How can the banks let this happen? It’s fueled by stupidity.”
“But that’s not stupidity, that’s fraud.”
“Tell me the difference between stupid and illegal and I’ll have my wife’s brother arrested.”
Give them the rating they paid for
All the bankers and financial analysts turned a blind eye to the risky loans and sketchy mortgages. And when defaults have gone through the roof, major bond-rating companies still insist on maintaining their AAA ratings on the failing bonds. Because it is ‘not in their interests to have the ratings changed’.
“The ratings agencies, the banks, the government, they’re all asleep at the wheel?”
“Charlie and Jamie had always sort of assumed that there was some grown-up in charge of the financial system whom they had never met; now, they saw there was not.”
“The market might have learned a simple lesson: Don’t make loans to people who can’t repay them. Instead it learned a complicated one: You can keep on making these loans, just don’t keep them on your books. Make the loans, then sell them off to the fixed income departments of big Wall Street investment banks, which will in turn package them into bonds and sell them to investors.”
As John Maynard Kaynes said, “The market can stay irrational longer than you can stay solvent.”
Let the buyers foot the bill
What is the worst thing that can happen after you bought a property? The property market crashes? No, not yet.
In June, Hong Kong’s largest developer Sun Hung Kai offered buyers of a mortgages as high as 120 percent of a home’s value if they are willing to pledge another property that they already own.
In early November, the Hong Kong government raised buyer stamp duties to between 23.5 and 30 percent. Home prices are expected to slump. Buyers who took up Sun Hung Kai’s ‘special offer’ earlier are now risk losing their own home if they default.
Before the subprime crisis, US home buyers were offered piggyback loans with first mortgage, second mortgage and deposit in the ratios of 80:10:10, 80:15:5 or 80:20:0. In the last case, borrowers basically could buy any property without making a single cent of deposit. After the market tanked, many home buyers ended up owing the bank money even after losing their homes.
“A thought crossed his mind: How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans.”
“We’re helping the consumer. Because we’re taking him out of his high interest rate credit card debt and putting him into lower interest rate mortgage debt.”
“With stagnant wages and booming consumption, the cash-strapped American masses had a virtually unlimited demand for loans but an uncertain ability to repay them.”
“Complicated financial stuff was being dreamed up for the sole purpose of lending money to people who could never repay it.”
Someone’s got to pay the price
What is the worst thing that can happen to the property market? Cooling measures? Market oversupply? Price corrections?
The biggest nightmare in any property market is the burst of the housing bubble. Because once that happens, even when government lifts all cooling measure; developers clear units at rock bottom prices; and prices drop to a ridiculous level, there will be no taker.
Because bad debts are everywhere. Fire sales are everywhere. Negative equities are everywhere. The banks are forced to absorb the bad debts. Even printing of more money cannot save the market.
You can’t end such a big problem with no pain. People need to pay a price for their mistake. When somebody makes a mistake, someone else is going to pay for it.
“Success was individual achievement; failure was a social problem.”
“If we’re right, people lose homes. People lose jobs. People lose retirement savings, people lose pensions. You know what I hate about f*cking banking? It reduces people to numbers — ever 1% unemployment goes up, 40,000 people die, did you know that?”
“I have a feeling, in a few years people are going to be doing what they always do when the economy tanks. They will be blaming immigrants and poor people.”
“When the dust settled from the collapse, 5 trillion dollars in pension money, real estate value, 401K, savings, and bonds had disappeared. 8 million people lost their jobs. 6 million lost their homes. And that was just in the USA.”
For all that has happened, do you think the world has learned anything?
bargain hunter
17-11-16, 18:52
Get ready to buy.
i think a lot of buyers have been waiting for ages, not many durians drop leh. the longer it takes the more there is pent up, the less likely prices will crash. more of a gradual fall.
stalingrad
17-11-16, 19:41
i think a lot of buyers have been waiting for ages, not many durians drop leh. the longer it takes the more there is pent up, the less likely prices will crash. more of a gradual fall.
I bet the cooling measures will be lifted by the end of the year. The PAP government can deny all it wants, but Singapore need an inflating property market to stay on the good side of the economic equation. When I lived in Singapore, I realized that property is the only hope for that country. There is nothing else. There are no home-grown industries except for property development.
Based on history, you must have been dreaming........
When recession comes, even government's implemented and allowed property heating measures also proven useless (as happened in the past), let alone just removing property cooling measures!
Don't be silly. There are still a dozen measures, none of which have been removed. Just a tweak to help refinancing mortgagees.
A dozen CMs removed have no effect on market? This is Singapore you know?
Based on history, you must have been dreaming........
When recession comes, even government's implemented and allowed property heating measures also proven useless (as happened in the past), let alone just removing property cooling measures!
Which part of history had a dozen cooling measures?
I am personally impressed by how effective the existing cooling measures are. It has been able to maintain a smooth soft landing for 3 years now and still able to keep the market demand is quite healthy state (just look at how quick people snapped the new launches recently).
The good side effect is for the developers to come with an attractive product/concept and reasonable pricing so generally improving the housing quality.
In recent few years gov tended to release new sites in strategic locations which also helping to sustain new sales (e.g. many GLS sites near MRT like potong pasir, tanah merah, serangoon, queenstown, yishun, aljunied, paya lebar).
Of course no one really able to predict when crash/recession would happen. As usual whenever everybody expecting it then it won't happen :).
History show printing money good for those with property. When US inflation increase, what will happen.
Money printed will not be distributed to the general people, so will not help those people who may get their properties force-sold because they lose their jobs etc because of recession (coming soon)........ so fat hope you have about printing money being good for property price..........
It is the economy that determine property price! (just remember this will do if you can't remember or don't understand anything else I said).
History show printing money good for those with property. When US inflation increase, what will happen.
PropVestor
18-11-16, 14:50
Money printed will not be distributed to the general people, so will not help those people who may get their properties force-sold because they lose their jobs etc because of recession (coming soon)........ so fat hope you have about printing money being good for property price..........
It is the economy that determine property price! (just remember this will do if you can't remember or don't understand anything else I said).
Actually, there is not much of a normal 'market' per say in Singapore. Pretty much the government owns every bit of land. Even supposedly 'freehold' land.
If its for 'national' purpose or reasons, they will buy it back from you and what can you do?
For that reason, property market in Singapore is really technically 'government property market'. I can say the economy play a role but of a lesser one. Government measures can and will determine the prices since it is their land after all. For example, if your house is in the way of a highway, road or trainstation and also a GCB, they will buy it back at market rate and there is no way you can say no. Its as absurb as suing PAP and hoping to win. So is there really supply and demand? Yes, but within the boundaries set by the government. CMs are just about a minor portion of the story that impacts everyone directly. Indirect measures are Government Land Sales, new zones like Jurong Lake Districts etc are part of the supply equation. MAS policies is also one of the strings the government pulls like interest rates 'peg' against Fed Reserve rates. Do we follow strictly? I would say no but generally, yes in pre-emptive measures of rate adjustments.
To put it simply, its pretty much decided in parliament or behind close doors of white buildings on our property prices. All the land that is stretching out from Marina One to the future Water Front City are all earmarked in stages of development till we become like NYC in building blocks and grid-like structure. You just need some imagination to see what it on the current green pastures now at MBFC area. That is also the reason why Marina One did not garner such attention with slow release. One limiting fact is that its view will virtually all building facing in the future or about 2030.
I may not be alive to see it through but its good to know Singapore will look pretty awesome with many many people living in this tiny island.
PS. Thread Starter's first post is a copy and paste of Property Soul. It might not be his own. I find these cut and paste useful to start a conversation but quite mindless/meaningless since their views are not their own.
2 cents,
PropVestor
I don't believe what you said is true.
If what you said is true, then, are you telling us that despite the property crash and prolonged slump from 1998-2005 (and property prices crash by more than 50%), the government actually purposely allow the property price to CRASH and slump and stay low for so long to make many people get their properties force-sold without even bothering to help?
So this just tells us that what you said is not true: i.e. the government has no ability to push up property prices after all if the economy is bad.....
Actually, there is not much of a normal 'market' per say in Singapore. Pretty much the government owns every bit of land. Even supposedly 'freehold' land.
If its for 'national' purpose or reasons, they will buy it back from you and what can you do?
For that reason, property market in Singapore is really technically 'government property market'. I can say the economy play a role but of a lesser one. Government measures can and will determine the prices since it is their land after all. For example, if your house is in the way of a highway, road or trainstation and also a GCB, they will buy it back at market rate and there is no way you can say no. Its as absurb as suing PAP and hoping to win. So is there really supply and demand? Yes, but within the boundaries set by the government. CMs are just about a minor portion of the story that impacts everyone directly. Indirect measures are Government Land Sales, new zones like Jurong Lake Districts etc are part of the supply equation. MAS policies is also one of the strings the government pulls like interest rates 'peg' against Fed Reserve rates. Do we follow strictly? I would say no but generally, yes in pre-emptive measures of rate adjustments.
To put it simply, its pretty much decided in parliament or behind close doors of white buildings on our property prices. All the land that is stretching out from Marina One to the future Water Front City are all earmarked in stages of development till we become like NYC in building blocks and grid-like structure. You just need some imagination to see what it on the current green pastures now at MBFC area. That is also the reason why Marina One did not garner such attention with slow release. One limiting fact is that its view will virtually all building facing in the future or about 2030.
I may not be alive to see it through but its good to know Singapore will look pretty awesome with many many people living in this tiny island.
PS. Thread Starter's first post is a copy and paste of Property Soul. It might not be his own. I find these cut and paste useful to start a conversation but quite mindless/meaningless since their views are not their own.
2 cents,
PropVestor
Money printed will not be distributed to the general people, so will not help those people who may get their properties force-sold because they lose their jobs etc because of recession (coming soon)........ so fat hope you have about printing money being good for property price..........
It is the economy that determine property price! (just remember this will do if you can't remember or don't understand anything else I said).
Money printed will not be distributed to the general people - True, if the general people don't own property in Singapore.
It is the economy that determine property price! True.
I don't understand why SGD 535,000 in 2006 can become SGD 1,550,000 in 2010.
It is the economy!
2005 is the start of the economic recovery, punctuated by 2008 Lehman crisis, then recovery again!
But now, Singapore's economy is really really going into recession, so you can expect the kind of drop like from 1998 if the economy stay low for low enough (like from 1998-2005)! :doh:
Money printed will not be distributed to the general people - True, if the general people don't own property in Singapore.
It is the economy that determine property price! True.
I don't understand why SGD 535,000 in 2006 can become SGD 1,550,000 in 2010.
ic not the money printing.
Then why M1, M2, M3 money supply change so much.
http://www.tradingeconomics.com/singapore/money-supply-m2
from 200 billion to 550 Billion.
Because you are climbing up the wrong tree!
You see, even from 1998 to 2005, Money supply also keep increasing, but property prices crash like a stone and drop by >50%!!!!!!!!!!!!!!!!!!!!!!
ic not the money printing.
Then why M1, M2, M3 money supply change so much.
http://www.tradingeconomics.com/singapore/money-supply-m2
from 200 billion to 550 Billion.
ic, so property price should go down when they print more money.
But my 5 room HDB bought for SGD 250,000 in 1996, can anyone buy one with this money today??
What you should ask yourself is this:
- Your property price is $250,000 in 1996, what is it now?
- What is a plate of chicken rice in 1996, and what is the same plate of chicken rice going to be (if they give you the same amount of chicken and rice)?
Then ask yourself, say a fresh graduate in 1996, what was his pay then,and what is the pay of the same fresh graduate now?
Conclusion: The earnings' increase is much much lower than your property price and the increase in the price of the same plate of chicken rice right?
So affordability is not there!
Ok, print money, but the people are not richer, so their affordability is actually dropping right? :doh:
Like that you expect OCR property price to increase when the general population's earnings and affordability is dropping?
ic, so property price should go down when they print more money.
But my 5 room HDB bought for SGD 250,000 in 1996, can anyone buy one with this money today??
The thread starter is the blog poster.
She is the expert, but was snooked by the CMs.
The market has been so twisted by the measures that many struggle to buy 1 and most struggle to own more than 1, exactly what our Govt planned. Must use HDB to exchange if aim for private, or pay the taxes.
Prices are indeed a bit lower to buy, but it's so much harder to qualify to buy as well.... Much deferred demand at the sidelines, including the TS, as well as Arcachon and myself if measures are really removed.
Actually, there is not much of a normal 'market' per say in Singapore. Pretty much the government owns every bit of land. Even supposedly 'freehold' land.
If its for 'national' purpose or reasons, they will buy it back from you and what can you do?
For that reason, property market in Singapore is really technically 'government property market'. I can say the economy play a role but of a lesser one. Government measures can and will determine the prices since it is their land after all. For example, if your house is in the way of a highway, road or trainstation and also a GCB, they will buy it back at market rate and there is no way you can say no. Its as absurb as suing PAP and hoping to win. So is there really supply and demand? Yes, but within the boundaries set by the government. CMs are just about a minor portion of the story that impacts everyone directly. Indirect measures are Government Land Sales, new zones like Jurong Lake Districts etc are part of the supply equation. MAS policies is also one of the strings the government pulls like interest rates 'peg' against Fed Reserve rates. Do we follow strictly? I would say no but generally, yes in pre-emptive measures of rate adjustments.
To put it simply, its pretty much decided in parliament or behind close doors of white buildings on our property prices. All the land that is stretching out from Marina One to the future Water Front City are all earmarked in stages of development till we become like NYC in building blocks and grid-like structure. You just need some imagination to see what it on the current green pastures now at MBFC area. That is also the reason why Marina One did not garner such attention with slow release. One limiting fact is that its view will virtually all building facing in the future or about 2030.
I may not be alive to see it through but its good to know Singapore will look pretty awesome with many many people living in this tiny island.
PS. Thread Starter's first post is a copy and paste of Property Soul. It might not be his own. I find these cut and paste useful to start a conversation but quite mindless/meaningless since their views are not their own.
2 cents,
PropVestor
Can buy 4room far flung outskirts for 250k still.
HDB serves an important benchmark internationally to attract decent wage earners to come over to earn a living, so it can't run away from international prices.
Private properties theoretically cater to a different segment of good income locals and well endowed internationals.
The trick in navigation is that both are somewhat substitutes for each other that one inevitably affects the other. If HDB prices truly stabilises, so will private.
HDB prices have continued to move last 3 years but it was barely noticeable because the dip in outskirt prices was masked by central gains.
What you should ask yourself is this:
- Your property price is $250,000 in 1996, what is it now?
- What is a plate of chicken rice in 1996, and what is the same plate of chicken rice going to be (if they give you the same amount of chicken and rice)?
Then ask yourself, say a fresh graduate in 1996, what was his pay then,and what is the pay of the same fresh graduate now?
Conclusion: The earnings' increase is much much lower than your property price and the increase in the price of the same plate of chicken rice right?
So affordability is not there!
Ok, print money, but the people are not richer, so their affordability is actually dropping right? :doh:
Like that you expect OCR property price to increase when the general population's earnings and affordability is dropping?
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