alright so i'm kinda supposed to type out my econs essay here!
And so here goes (apologies for all typos! and other possible malapropisms. (sounds kinda familiar?))
A booming property market would refer to the fact that the property market is expanding, and that the demanding is increasing.
Demand refers to the relationship of various quantities of a well-defined good or service that consumers are willing and able to buy at a given set of prices at each possible price over a period of time in a given market, ceteris paribus.
(p/s, the below two paragraphs are paragraphed for clarity. it’s meant to be in one paragraph actually.)
Supply, on the other hand, is the various quantities of a well-defined good or service that a producer or producers are willing and able to offer for sale at a given set of prices at each possible price over a period of time in a given market, ceteris paribus.
Equilibrium price refers to the one and only price where quantity demanded and supplied would be equal.
Since a booming market is caused y an increase in demand, factors (non-price) have ti be looked into.
Firstly, it could be due to a change in consumer income. This increase in income of couples and other homebuyers could have stemmed from increased wages and/or promotions, as well as the attainment of permanent job status, instead of being a contract worker. This is a result of the strong economic growth. Since housing is a normal luxury good, when there is an increase in income of couples and other homebuyers, an increase in demand is observed.
Secondly, this could be due to a change in consumer expectation. Due to a bright economic outlook during that period of time in 2007, potential homeowners expected their future income to further increase as well as the price of houses to increase in the future as well. As such, due to the expectations of good investment in housing, as well as the belief that they would be able to sustain a more costly but more comfortable place of residence, the demand for private housing increased. Private housing is not an easily-perishable good like food items, and this means that the effect of the change in consumer expectation is more pronounced.
Thirdly, this could have been due to a change in taste and preferences. During that period of time in 2007, newspapers such as the Straits Times released Sunday editions that contained a dedicated section to home investments in various areas in Singapore. In addition to this, many unit launches were advertised in the mainstream media. This created wants in homebuyers in purchasing private housing as opposed to other government-owned housing, and hence, at every single price, consumers are now willing to purchase more.
Lastly, this is due to a decrease in the interest rates of loans from banks. Due to a highly competitive banking industry, the interest rates for loans fell significantly. As a result, potential homeowners were compelled to take up a larger loan without having to worry about shouldering a large amount of interest. Fuelled by the falling interest rates, potential homeowners looked to purchase a more expensive private house with the larger loan they attained instead of relatively cheaper Housing Development Board (HDB) Flats. This fuelled the demand of private housing.
All of the above factors culminated in the increment of market demand of private housing. This can be depicted in a graph as shown below:
(insert graph of demand curve shifting to the right here)
There was a shift of the demand curve rightwards as observed by the demand curve shifting from DD to DD1. At the same price of housing, the quantity of housing demanded increased.
However, we must also consider that factors of supply could also have had a part to play in the booming housing market, which led to the reduction of supply of houses.
One of the factors that affected the supply curve was a change in cost of production. During that period of time, Indonesia banned the sale of sand to Singapore, and this meant that alternative but significantly more costly source of sand had to be used. Singapore does not have its own natural resources, and an increase in price of imported goods shored up construction prices dramatically. As a result, this led to a decrease in supply. Certain government policies put in place to provide more stringent checks on construction firms to ensure ethical construction practices, especially following the Nicoll Highway incident (actually this part wasn’t in my essay. oh wells.), further added on to the cost of production.
Another factor that affected the supply curve was the change in sellers’ price expectations. Like the buyers, developers and other current homeowners looking to sell their property expected home prices to increase, and were reluctant to let go of their property. The market supply of housing was thus reduced, as the developers wanted to carry out their home unit launches to the market only when the price rose. As such, the reduced supply shored up the reduction in supply as well.
As observed, there was an increase in demand and a decrease in supply. This can be depicted in the graph below:
(insert curve of shift of supply curve left + shift of demand curve right here)
The price of housing will increase, as observed by the shifting of the equilibrium price from P to P1, which is the new equilibrium price. However, at the same time, the increase in demand leads to an increase in quantity while decrease in supply leads to decrease in quantity. These opposing forces with regards to quantity means that quantity change is indeterminate.
(any suggestions on how to conclude better? )
anyway it took me super long to type cos my typing speed is kinda like.. pathetic T_T
GO TO CLASS BLOG OKAY. thanks!
Friday, April 3, 2009
Wednesday, March 11, 2009
article
taken from: http://www.moneyweek.com/news-and-charts/economics/canada-the-least-worst-economy-in-the-world-42509.aspx
Canada: the least worst economy in the world
Mar 06, 2009
Canada is "a flea on the back of an elephant", says John Stephenson of First Asset Investment Management. "We're levered to global growth through our commodities." That may explain why Canada has just reported an annualised fall in GDP of 3.4% for the fourth quarter of 2008. That's not as bad as America's drop of 6.2%, or Europe's 5.9%, but it's still the worst figure since 1991. Exports fell for a record sixth successive quarter as the American and global economies slumped; around 33% of Canada's GDP stems from exports to the US, the biggest importer of its northern neighbour's oil and gas. And household spending eased as nervous consumers kept their wallets shut.
It sounds bad, says Lex in the FT, but in fact Canada is in far better shape than other major economies. For starters, guess which country, alone in the industrialised world, has not faced a single bank failure? "Yup, it's Canada", which has been "remarkably responsible" over the past decade, says Fareed Zakaria in Newsweek. In October the World Economic Forum deemed the Canadian banking system the world's healthiest.
Canadian banks have raised plenty of capital to offset their comparatively modest losses on toxic securities. And the ratio of deposits to total liabilities for the sector is 70%, compared to under 50% in America and Europe ex-UK. Canadian banks are typically leveraged at 18 to 1 (so there are $18 of debt for every $1 of equity), whereas the equivalent American and European figures are 26 and 61 to 1, says Zakaria.
Strict regulation and a "conservative culture" have made the banks "the envy of the world", says Christopher Mason in the FT. In Canada, "they will lend you no more than 75% of the value of your house", adds Laurence Booth of the University of Toronto, so the housing boom never bubbled out of control. Prices have fallen by 12% from their peak so far – half the American slide – while Halkin Services points out that less than 0.4% of mortgages are more than 90 days delinquent, compared to 2.2% in the US. Households are also less indebted, with the ratio of debt to net worth at 21%, rather than America's 28%. Banks continue to lend too: growth in business loans by commercial banks over the past three months has slipped below zero in America, but is up 9% in Canada, says Halkin.
The Canadian dollar has tumbled to around 78 US cents from above parity and the government has plenty of room to fend off the slump. A C$49bn stimulus package will push the budget into the red for the first time in 13 years, but public debt fell to 23% of GDP last year, the lowest in the G7. All this has fuelled hope that the downturn will be "less acute" in Canada, says Lex, and suggests that the country is well positioned for the return of the good times.
But that, along with a durable rebound in the commodities-heavy Canadian stockmarket – down by over half from its early 2008 peak – depends on a recovery in America and elsewhere. This still looks some way off. If there's no sign of global growth, "stocks will be poor", says John Stephenson. It's too early to anticipate the next bull market, but Canada is a future recovery play worth watching.
Canada: the least worst economy in the world
Mar 06, 2009
Canada is "a flea on the back of an elephant", says John Stephenson of First Asset Investment Management. "We're levered to global growth through our commodities." That may explain why Canada has just reported an annualised fall in GDP of 3.4% for the fourth quarter of 2008. That's not as bad as America's drop of 6.2%, or Europe's 5.9%, but it's still the worst figure since 1991. Exports fell for a record sixth successive quarter as the American and global economies slumped; around 33% of Canada's GDP stems from exports to the US, the biggest importer of its northern neighbour's oil and gas. And household spending eased as nervous consumers kept their wallets shut.
It sounds bad, says Lex in the FT, but in fact Canada is in far better shape than other major economies. For starters, guess which country, alone in the industrialised world, has not faced a single bank failure? "Yup, it's Canada", which has been "remarkably responsible" over the past decade, says Fareed Zakaria in Newsweek. In October the World Economic Forum deemed the Canadian banking system the world's healthiest.
Canadian banks have raised plenty of capital to offset their comparatively modest losses on toxic securities. And the ratio of deposits to total liabilities for the sector is 70%, compared to under 50% in America and Europe ex-UK. Canadian banks are typically leveraged at 18 to 1 (so there are $18 of debt for every $1 of equity), whereas the equivalent American and European figures are 26 and 61 to 1, says Zakaria.
Strict regulation and a "conservative culture" have made the banks "the envy of the world", says Christopher Mason in the FT. In Canada, "they will lend you no more than 75% of the value of your house", adds Laurence Booth of the University of Toronto, so the housing boom never bubbled out of control. Prices have fallen by 12% from their peak so far – half the American slide – while Halkin Services points out that less than 0.4% of mortgages are more than 90 days delinquent, compared to 2.2% in the US. Households are also less indebted, with the ratio of debt to net worth at 21%, rather than America's 28%. Banks continue to lend too: growth in business loans by commercial banks over the past three months has slipped below zero in America, but is up 9% in Canada, says Halkin.
The Canadian dollar has tumbled to around 78 US cents from above parity and the government has plenty of room to fend off the slump. A C$49bn stimulus package will push the budget into the red for the first time in 13 years, but public debt fell to 23% of GDP last year, the lowest in the G7. All this has fuelled hope that the downturn will be "less acute" in Canada, says Lex, and suggests that the country is well positioned for the return of the good times.
But that, along with a durable rebound in the commodities-heavy Canadian stockmarket – down by over half from its early 2008 peak – depends on a recovery in America and elsewhere. This still looks some way off. If there's no sign of global growth, "stocks will be poor", says John Stephenson. It's too early to anticipate the next bull market, but Canada is a future recovery play worth watching.
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