No Doubts, the Bubble has Burst!

According to the National Bureau of Economic Research (NBER) in the United States, the technical definition of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product. 

However, the NBER does not need to wait until the numbers from the second consecutive quarter before it declares that the economy is in a recession.

We don’t know if there is a technical definition of a bubble burst in real estate, so we are borrowing from the NBER.

As of today, we define the technical definition of a bubble burst as two consecutive quarters of the real estate market trading at or below X-Value. 

If we look at Transaction-Over-X-Value (T-O-X) for private apartments, it has been negative or zero for the duration of the graph, beginning November 2013.  Clearly the bubble has burst!

 

If the Government imposed Cooling Measures to prevent a housing bubble, mission accomplished!  Does this mean time to let the private market float?

 

Online dictionary Investopedia.com defines a housing bubble as:

A run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand in the face of limited supply. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices - and the bubble bursts.

Based T-O-X and other graphs from the SRX Media Flash Report for August 2015, it’s hard not to conclude that the bubble has burst and the market has stabilized at its fair market value.  (The same is looking true in the HDB Market.  See HDB Market Stabilizes in August for our analysis on the HDB market on the eve of an election as well as for background details on X-Value and T-O-X.)

 

T-O-X measures market pricing sentiment.  A negative T-O-X implies that buyers have the upper hand and are negotiating the price down.  An increase in supply and Cooling Measures are examples of factors that can lead to a negative pricing sentiment.

 

A consistently positive TOX means that the sellers have the negotiating power.  When demand exceeds supply, the market will push TOX into positive territory.  A very high positive TOX signals the possibility of a market bubble.

 

A T-O-X of zero means the market is trading at par (i.e., neutral market pricing sentiment) and that people are buying at fair market value as estimated by SRX Property’s computer-generated X-Value.

 

A market where buyers and sellers have been trading at or below X-Value doesn’t sound like a  “run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future.” 

 

If this is the case, isn’t it time to lift the Cooling Measures on the private market? 

Check our SRX Property's eNewsletter this Friday for a Special Election Eve Edition on the State of the Real Estate Market.