Frothiness building up in property market – Nouriel Roubini

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Google him and you would know who this person is. Need no explanation in the economics world. He wrote an article in The Edge recently detailing how the global financial crisis was triggered by a series of collapsing housing market bubbles. He mentioned US as the one most well known. I think all of us remember how the mortgage crisis actually killed off many US banks and at one point in time even Citibank was facing trouble. That has all passed, hasn’t it? Well, he argued that signs of frothiness are now building up in housing markets of Switzerland, Sweden, Norway, Finland, France, Germany and more. As for bubbles, it has started appearing in Hong Kong, Singapore, China and more. He did not mention Malaysia. I hope he did not overlook us but has merely excluded us because there are no signs of bubbles. 🙂

The signs are as follows: FAST RISING HOME PRICES, High and rising price-to-income ratios and high levels of mortgage debt as a share of household debt. Are these applicable to Malaysian property market, well I think to some extent the answer is yes. Nevertheless, his article did not end with a negative note. He merely stated that a lot of the signs that we are seeing today actually reflect a slow motion of replay of the last bubble. The bigger the bubble before it bursts, the bigger the crisis would be.

Please be reminded again, if the property prices moderate with the many cooling measures adopted, this may help to reduce the risk of bubble. In terms of rising price-to-income ratios, I would like to advise everyone again, buy within your comfortable range. If you can afford a RM500,000 mortgage, do not stretch to the max, why not buy something smaller and slightly further away? As for the share of household debt, please do note that even if you are not paying for mortgages but you are paying rental, that’s also a share out of your salary. Imagine if you cannot afford to pay rental. That problem would also be as serious as you not paying your mortgage. Both cases, you may lose a place to stay and be sued in court. Just that it is harder to sue you for rental payment. 🙂

Stay safe, don’t speculate.

written on 14th dec 2013.

Next suggested article:  Gloom and Doom in property market? 

 

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