In the US as quoted,

"Nearly 1 in 4 of the population with a mortgage are “upside down” and as a result are now prisoners in their own home. We have over five million homeowners now either in the foreclosure process or seriously delinquent. The government’s HAMP program was supposed to bail out between 3 and 4 million distressed homeowners and instead we have only had a success rate of fewer than half a million.

Now back to the new home sales data. Every region in the U.S. was down, and down sharply. The homebuilders did not cut their inventory levels and as a result, the backlog of new homes surged to 9.1 months’ supply from 8.0 months in June, which means more discounting and margin squeeze is coming in the homebuilder space. As it stands, median new home prices were sliced 6% in July and this followed on the heels of a 4.7% drop in June. And, at $235,300, average new home prices are down to levels last seen in March 2003, down nearly 30% from the 2007 peak. If the truth be told, if we are talking about reversing all the bubble appreciation that began a decade ago, then we are talking about another 15% downside from here. The excess inventory data alone tell us that this has a realistic chance of occurring.

The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer — zero, nada, rien; and for the second month in a row. Only 1,000 units priced above 500,000 moved last month. That’s it! Over 80% of the homes that the builders managed to sell were priced for under $300,000. Just another sign of how this remains a full-fledged buyers’ market — at least for the ones that can either afford to put down a downpayment or are creditworthy enough to secure a mortgage loan (keeping in mind that 25% of the household sector does have a sub-600 FICO score).

This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to be extinguished, either by paying it down or by walking away from it (or having it socialized)."

The interesting thing here is the US property market for the most part before the crash and continued landslide still have affordable property at the 4x level in various major city suburbs and still the slide occurs. High end properties are always the first to suffer and I could not believe not one property in the US over $750K sold in the month of July!!!

I agree with the posters on this blog that location will help you manage your risk IF you purchased in the 2007 or earlier in Kuala Lumpur and you should be fine if a correction occurs however in the high end market RM3-7M I believe a 30% correction is in order similar to my looking to purchase at this reduction only 1.5 years ago. I believe the a similar correction could take place for speculative properites in the KL core and surrounding affluent developments.

Lastly I believe the secondary market of 500K-1M is in for a very interested ride where bungalow owners, just like the rest of world who speculate on rentals will dump them to make margin calls on other investments or just plain mitigate risk in thier portfolios.

To those still stuck with a local only view, this is a global event, this is the only time in history where expansive money, mass consumption, low interest and loose policy is mapped to the richest demographic in the world -- the baby boomers who have used thier RE like an ATM or tied up all retirement in it and have lost in the end game.

I cannot believe the unaffordable property in KL and surrounding development first off, this should be a big red flag that the bubble here is worse than perceived. If you are a smart investor, you take profits at the top so even if you purchased property prior to 2007, why not take the 30-40% profits and come back in and play later.

This will not end well...be ready, be protected, be smart for turn 3-5 years down the road. Without liquidity (which RE is not) you will not be able to take on the great opportunities after the correction NOR be in a position of affordability when your home is under water!

Spoken like a true politician...what else is he going to say! Politicians + Banks + Brokers + RE Agents + Developers + Media defend policy and values until the bitter end...ask the western world.

Remember, you can not have an Asian Centric View unless Asia has evolved to be the powerhouse next generation economy, that will only start after the Western World finally gives in to the move. 15 - 20 years away to start. There is massive sovereign debt to be managed over the next 3-5 years that will put a final end to this cycle. During this time, the destinations above will suffer badly especially China followed by HK and Sing. Malaysia will not be spared with the exception of moderate corrections, 10-30% based on speculation/location.

I buy property when rates are high, tight lending in place etc as this means supply outstrips demand and prices fall to their lowest possible level. This is the time to get in. My suggestion to anyone who cannot afford to put down 30% right now is to stay out, rent, take the extra cash flow and save until this time occurs.

Remember, a balanced portfolio should only include 40% of your net worth in RE, 60% should be in other balanced investements given your circumstances. Just ask all the baby boomers right now with 85%+ of all net worth in RE if they can retire in the USA now, 5 or 10 years down the road? Not! Dumping homes for cash where 3 more years of downturn in RE in USA is poised to take the market on avg. to 50% drop. Smells just like QE in Japan the last 20 years and will happen to some extent in EUROzone and absolutely in UK. Canada Aus NZ and China next to burst but coming in November mid terms USA.

This is only my opinion and for the value of those here who are not property investors but HOME buyers for personal use. I'm a property investor and I choose to wait as well.

Newsflash, when a government takes action/policy quoting a bubble is forming...it's due to the fact it already has and has the potential to gain size and strength further before it eventually pops.

10-30% correction in KL and burbs coming 2-3 years IMHO! 30% to High End and Speculative Low-Mid!

Reasons : Finally the real recession/depression will play out in Western World. Sovereign Debt, High RE bubbles and Demographic of Boomers all meet on the charts (first and only time in history). G7/G10 Countries all take their own approach at dealing with debt so currency crisis potential. China bubble bursts (managed downturn as you would expect). Commodity countries still left based on false demand (Canada/AUS) bubble bursts 40-50% down. USD up for time being revist last 2008 early 2009 levels. Spring 2011..USD flops...dollar debasement and all currencies have to devalue to remain competitive (Swiss Franc / Yen safe havens). New Global Currency? Maybe more than one for West and East!

DEFLATION next 2-3 years followed by moderate inflation however the cost of foods/staple goods will inflate heavily. Note that the price of food in Malaysia is already more expensive!!! Living costs increasing by 10-15%!

End game - Malaysia has moderate correction, buy in this trough and be poised to do well in the next generation of Asian Expansion! 10-20 years out!

The top is in my friend...I dont own any RE now...liquid in Preferred Stocks and 7-10% yields only! I practise what I preach and dont expect many to follow my plan but that's normal. The 2-3K income earner you speak of helped create the bubble as well.

Unlike Asia in the future, RE in the Western World is done! Ask Japan! RE will only be shelter for them and the trend to rent, free up cash flow for much more worthy investments will occur after this 30 years of credit expansion. That is all!

I realize most of you will not agree with my view...it is only there to give you a more global perspective!

Like Said, it's all about affordability and emotions! When the market turns negative, which is clearly going to happen here, the correction will take place. Listings are now way up and pricing being reduced daily in the high end market I'm following.

Remember when you ask yourself what your property is worth, the answer is what a buyer is willing to pay.

When prices start to slide matched with tighter lending practices and potentially higher interest rates, RE only goes one way.

And buyers, well....they sit and wait for another price reduction. Note though those ideal (well located properties) will go first, usually 5-10% before the bottom. Suggest you convince yourself to buy in before this time to secure them.

My calculations show the avg. is approaching 9x income. Understand that 13x income would put KL props at the worst in the world. Even about Vancouver BC in Canada at 10x and Sydney at 9.4x. If KV burbs are at 5.3x income affordable for this region would be 4x. I would be willing to buy at 5.5x income in KL top codes. I believe it's coming, but on the positive, after this next correction, the long play is very important for Malaysia and that's why I live here now!

Dont worry, there will be enough RE to go around at affordable prices as only a few will be ready to sell at the top (which is already here - maybe passed by a few months already) and make a play for the trough.

2-3 years down, 3-5 year sideway to slow recovery and then Asia will make its move...all around 2020!

Years? Try months? 18-24 of them!

Quite simply the same increases have occurred in Malaysia and Asia as a whole on the back of the Western Credit Expansion. Without this expansion over the last 30 years to build Asia (exports) and especially the underhanded money printing going on for the last 12-13 years and now massive stimulus to shore up the financial crisis, how do any of you justify further increases in KL, KV or Malaysia as a whole.

For the record, affordability of 2.5x salary was acceptable back in the 60's and 70's when single incomes were still in place. Cheap money, loose lending and going off the gold standard gave banks every opporunity along with governments to monitize the whole system. This momentum just pushed up housing prices forcing single person incomes to turn into 1.5x perons incomes (through part time) and to the point where you need two incomes to service your household debt. This level was sustainable at 3.5x income but the last 10 year run up was all a ponzi scheme. It should have corrected after the High Tech Meltdown but government - banks started playing the new game which made money even more easy to obtain.

It's typical of a government looking only at surviving it's term in office instead of seeing the big picture and doing the correct things for a country. Instead of regulating the flow of cheap money and instead of the consumer taking the opportunity to pay off debt quicker, the party started and just kept going hense the 10x incomes needed to service a mortgage payment.

This cycle is now coming to a close with sovereign debt, boomers coming of age and while interest rates are still at all time lows, there is not enough demand, jobs and income to support this anymore. It will not end well for many...the top if any is in...KL high end properties on are the market right now looking for buyers and price drops have been occuring for months now. It will be only time before the 30% comes off these props again and then down to secondary markets prime KL and then KV. It will be slower than the last shock almost two years ago.

This is a global thing and there is nothing left to do but watch it all unfold. Global leadership G7 or G10 are so disconnected on how to handle debt right now, this will only make matters worse. The choice to hold (if you purchased at least 3-5 years ago) is likely to be okay. You will potentially only loose your perceived profits, keep your RE and this might be okay for the average home owner who has a secured job and family however for investement in general, you should have sold by now.

Flipping properties was so 10 years ago in the western world...been there done that...did well but you need to know when to take profits, see the trends and move on !

I have just seen the error of this in KL in Bangsar with the new condos at BSC area. These were speculated and already cant be sold. Asking $1000/sqft, I have heard some are being let go for $700 per. The owners have lost the 10% down (around RM400K), now built cannot rent to carry the prop so OUT! These early dumpers are smart, others will go into denial and loose more. It's true, many can cover the losses easily but most cannot.

Right now volitility has become the new market norm. Dont expect fundamentals to play a part for the next 3 years minimum.

Even Nuriel Rubini is stating a 40% chance of a double dip in the USA and EURO on Par with USD.

Listen, if you fear the new rules of 20-30% down are going to price you out of the market down the road, you shouldnt be buying property in the first place. Put it this way, and this is simple stuff, you buy now, property drops 10%, your downpayment is gone. Inflation is kicking in while asset deflation is as well so all it takes is a jump in interest rates and your done! btw, I'm trying to be optimistic at 10%. Save you money and be ready to make your move.

I agree that if you buy in the right location in KV you might survive but why even risk it!

Please note this was the min lost of 400K, at 700/per they will loose 1.2M!

There is no policy yet but it will come to as you say curb the enthusiasm and emotional train wreck on the RE path right now. This will likely be implemented I understand on higher end properties to start or highly speculated properties and 2nd, 3rd and on residences.

Hey, guess what the insanity continues down under, bank willing to offer you 105% of the mortgage. That's called 0 down and cash back of 5%. Aussies have lost their minds!

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Added on September 13, 2010, 5:18 pmthis is the one! where's there's smoke, there's fire!

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Added on September 13, 2010, 5:21 pmRental price, too high, expectations too high, reality....priceless!

This is why some are dumping at $700/per...cannot carry them even after the loss!

Again, why would you! Take your punches, leave the ring before you get KO'd, lick your wounds, live and learn!

This post has been edited by Onemorething: Sep 13 2010, 05:21 PM

The Gwai Lo is insignificant in this whole thing. It's like saying the Chinese in Vancouver Canada prop up the market. Never has, never will!

That is the magic question!

RE is not liquid so just say no!

Preferred shares - Banking - Utilities yielding 5-7% is fine!

5% Gold 10% Silver

Cash - USD YEN SWISSY in that order!

Agriculture & Aquaculture feeding asia

Volatility is the play and if you dont day trade stay clear of it.

Remember at this stage a 5-7% return is excellent!

A 10% loss will be manageable!

Stay Liquid always to move with the volatility and maintain a flush position and you will be a star!

Yes, try to sell when everyone else is jumping ship...see how it works out for you!

Seller - "If I drop my price by 10% I'm sure to sell!"

Buyer - "If I wait, I'm sure to buy for 10% less next month!"

This is the cycle many western countries are facing every day! Listings are up 400%, sales transactions down 400%. RE can only go in one direction until a reasonable bottom (deemed affordable) can be found.

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Added on September 14, 2010, 3:11 pmThese are bank preferred, they are in their low risk portfolio, pay quarterly dividends on top of annual returns. Do not mix up with the actual bank stocks being sold.

This post has been edited by Onemorething: Sep 14 2010, 03:11 PM

If USD Index breaks 81.88 then you need to watch next level of resistance at 80.00 however flight to safety will repeat itself post November mid terms. The USDI moves with Crude right now only. It should make one more great move to 88-90 then that will be it for the USD I'm affraid. The next best is YEN and CHF. The YEN is maxed out on 20 years of QE and Swiss just a safe haven.

AUD/CAD/KIWI as commodity currencies will drop 20% during deflation and loss of demand, oil will go down to $60/b.

China is not ready to increase the value of the CNY, even to control inflation as they MUST continue to ride thier last stage export phase before domestic demand can gather momentum.

I'm not a day trader but a long term currency trader. If currencies go into crisis starting with the USD then all countries which are pegged are in trouble I agree longer term however all will devalue thier currency to stay competitive. The big question is which currency will be the best of a bad bunch. I will support CHF!

Agreed, but very few know how to invest in the first place! Ask the Americans how they feel now about being highly invested in RE (some only in RE) and then using it like an ATM. Fannie and Freddie are back to zero down offers on mortgages but there are few takers. Two reasons, most wont qualify and others see RE moving forward as not a smart investment.

You dont do you own dental work, or diagnose yourself when you are sick, you trust a professional to do it, however most investment firms over the last 20+ years found it easy to make money again based on credit expansion. They bought and sold anything which paid them the highest commissions. They graduated in the Arts, Science and Engineering and became stock brokers and financial advisors.

Mr. Buffet is the exception. Had a great run with all that was unfolding and he knew it. Those invested with him WERE diversified with every share of Berkshire. He himself is finding it hard to navigate todays volatility.

Given those who come to this blog are not Mr. Buffet, may or may not know anything about investing, and may not be as savy as yourself, what kind of advice can you offer them?

correct....correction....10-30% dependant on new or established & location.

The double dip in the US housing market is about to begin.

Canada finally showing inevitable signs of bubble bursting.

Australia is next!


Side Note : the US threw good money after bad for the last two years to shore up what they felt would have taken down the world economies. For RE, this meant keeping rates lowest in history, offering huge incentives and buyers programs, keeping all the foreclosed homes off the books to keep housing supply seem not as bad as it was.

Home owners with mortgages in the US are non-recourse meaning you could simply walk away, many did and still the market suffers. Based on keeping shadow inventory numbers lower, owners stopped paying mortgages for over 12-18 months while still living in their homes. These are all reasons to be concerned as all is coming to a head.

This is an example of how loose regulation and monetary expansion parties come to an end. This also shows you how those who follow the responsible path such as paying down mortgages, reducing debt will not be rewarded as all this sovereign debt must come from the healthy taxpayer.

The mortgage owner with zero down walks away, the one with 30%-50% ownership looses it all in asset deflation.

RE is and was for the US an Emotional thing pumped by every Ponzi on the planet. It's reaches spilled into other parts of the Western World in real time and for Asia for at least a decade. The unaffordability you see in Malaysia is evident now and steps are being taken to control it.

One thing can be said, it is usually too late when this type of news comes out.

I agree with Pai on 2012-2014 and 2010 forward purchases however, I would also include the time previous to the 2008 crash forward. Those here will recall when all the steep run-up began. Bench mark this date at 2006-2007 prices to return in some locations. This would be deemed a price correction as it could be 10-30% only. Just be happy you are owning in Malaysia and not China, HK or SING right now!

As for the US, right now housing has come back to almost 2001 levels with another downturn to go. Could it potentially hit 1997 prices adjusted for inflation to return as some are predicting? Now that is scary!

come on guys, get with the meaning, you need to sell the property first, find a buyer! This is not liquid when it's a buyers market only when it's a sellers! Ask California residents who are now taking a 60% hit on million dollar mcmansions as there are NO buyers and actually as I stated two weeks ago, in the month of July, there was not ONE transaction in the USA of greater than 500K.

Stocks, PM's even Currencies - Equities - Bonds can all be sold quickly if needed. Your house, car, boat and antique Ming Vase, NOT!

Yes Pai, agreed but what avg. malay is going to know how to do it! There loss becomes someone else's gain. They will never know the liquidity we are talking about here.

You keep coming at this from your highly knowledgeable position but one liners arent helping your fellow man invest in RE with options.

There are extreme pitfalls for the novice RE investor in a good market.

What is the purpose of this blog if not to assist the group with strong explanations rather than subtle soundbites!

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Added on September 18, 2010, 8:18 amfor the record I am no pro, none of us would be here commenting if we were. I follow global markets and trends. You my friend have your own agenda and so do I ultimately so dont judge the individual, state your view a be done with it.

My only point here which is not in line with your micro agenda is moving forward the macro view showing Asia extremely vulnerable to global challenges especially when it comes to lessons learned in RE.

Funny you bring up Japan, I recall a correction in RE there to epic proportions. The country has lost two decades but I see it as the neccessary correction one country needed to get real. Same will happen in China, HK, SING and to some extent in Malaysia. You bubble, you correct, the pieces on the global board change, you adjust your view accordingly!

It's just when!

This post has been edited by Onemorething: Sep 18 2010, 08:18 AM

Thanks Pai, strong response and worthy for those here to view.

As for the US comments, I only use these as an example of speculation, emotion and yes how the US woes have an ultimate effect on global investors. The US coughs, other countries seem to get a cold. I could have used the UK or EUROZONE as same example.

For the record, I have never said properties on KL could drop to the levels of 60%, I have maintained a correction of 10-30% based on those areas and types of props, landed or not which have had run up due to speculation only. You will see significant drops in China, HK and SING. Malaysia will be okay.

My point on investing is an important one, at no time should your total investment in any one asset class be too high. In this case I use a 40% of my assets in RE as a max. RE is easy to invest in, and in a downturn not easy to sell unless you drop your price quickly and grab some wanna be vultures before the sellers dry up and play the I'll wait for another 10% down game.

As for these other investements listed, these are the liquid ones I tend to use and with a good mixture can net an avg. of 12-15% return but still stay ready for any volatility which is what the next decade is all about....globally. I like you around 2007 used the Buffet model but saw the bubble forming and had to learn quickly what other asset classes were needed for balance and in some cases to some heavily weighted in RE, survival!

I have been a avid RE investor for years and have done extremely well however may I subscribe that this is the first time in history where I see a very unique trend occuring which mates credit expansion with demographics. The boomers, gen x and gen y's are all in trouble and being in one asset class such as RE is already shown to be troublesome.

The problem is simple IMHO, our people are partying and drinking from the punch bowl similar to those in the rest of Asia and world and to the point in which the RE market is defined as UNAFFORDABLE. This is where the trouble starts and eventually ends.

The solutions as I have posted before:

1. Dont buy what you cant afford thus keeping the 40% rule in RE investments.
2. If you can meet this criteria then it's all about location and future trends in KL and KV. I see a highest correction in KL with affluent areas as trends (cheap borrowing/relaxed banks) driving up these the most in the last few years along with the new speculative group who have bought into new developments in these areas.
3. If you have bought previous to 2002, no problem! If you have purchased 2003-2004, with the run up of 50% then fine but if you purchased 2006 to now, take a look at recognizing these nice gains and sideline yourself with liquid assets ready to re-invest.
4. RE is an emotional game right now. The wrong trigger can turn it to negative!
5. If the Articles in the MSM are talking about a bubble or potential for it, the position is already there and it's just a lagging response to try and curb it via measures on speculation.
6. Industry professionals when asked to comment on the perceived formation of a bubble are all neutral to positive means they hope they can ride this one out. You dont have an industry professional, who's livelihood depends on the health of RE this question and expect them to be bearish even when the writing is on the wall.

There are two types of people on this blog, invested and not invested. You can guess which one I am right now. I am not counting on the fundamentals this time as there is a massive disconnect between what is truely happening and what is perceived. I have been there before, have won and lost but know the new game to be a divided one between the afluent and not, just like the middle class disappearing in the western world, the same will occur everywhere.

As for location, I am looking to purchase next only for personal use! This is in these affluent areas that are most bubbled, hence my position! As for investing, looking for land, land that can be worked with minimal infrastructure for local and export purposes. 30-60K per acre on outskirts of KV.

That is all I can share for now!