All in a day's work

Here is my view on the million dollar question. First let us take a look at the property cycle.

There is a constant opine throughout that property lags the economy as an asset class. Even recently, we can see this trend even in Singapore. There was a good run uptrend in the economy and property prices started rising till the point when everyone was saying that it's too expensive. Then "BAM!", we all know what happen after this. Now property prices are coming back down again. A boring cycle indeed, but can you identify with it? Are there lessons to be learnt?

Why then does the property lags the economy.

A booming economy will bring in the monies to the bank and for this to happen, time is required. When everyone seems to be very comfortable with the amount of money set aside, they look to invest in the most physical asset, property. When the demand increases, prices increases. It's normal. A property asset require a huge amount of money and housing loans would normally be subscribed for their very purpose. This result in a man laden debt, who still holds the positive mindset that the good economy will last. When a crisis hits long enough for everyone to realise that the good times are gone, a primitive man's psychological reaction would be to protect himself and his needs, thus the demand for property drops resulting in the drop in property prices/value. This will generally also cost a reduction in expenditure in the economy throughout.

How does that relate to a bottom then.

In a crisis like this, companies bankrupt and employees retrenched. Both these incidents will have negative effect on the economy but the time before the impact is felt also require time. This I think is pretty easy to comprehend and I won't spend too much time explaining. In 2H2008, we see the liquidation of banks and retrenchment of staffs and at the start of 2009, more retrenchment news (Alcoa)and liquidation of operations (LyondellBasell) was announed.

If companies are not making profits and unemployment rate is high worldwide, why is there a good reason for a rebound or rather, should any rebound be taken seriously and result in you jumping into a position?

Although I also know that it's been said that share prices are at their lowest even before the economy shows it. (I forgot the term used to relate this but try to understand.. haha!) But do you think things might be rosy again soon? If so, how soon?

Share with me your thoughts!