In a market downtrend, a temporary rebound of prices is seemingly misunderstood by many as a trend reversal may disappoint even more people when it is actually a dead cat bound as it will eventually fall back to a down trend shortly after. This term describing a false alarm in a trend reversal is commonly used in the stock market but it is equally useful in property market as well.
Who must be take note?
Investors and speculators who are holding back now for the prices to go down further without a well-planned entry point.
What are the signs of a true recovery?
The above Chinese idiom says that the only person who can untie a bell is the one who tied it initially. Arguably, the downtrend of property prices in Singapore is a result of government’s cooling measures to stabilize the market. In other words, signs of true recovery must come from removal or relaxation of the cooling measures.
What if the prices reversed significantly without any changes to the cooling measures?
In the unlikely event for prices to reverse in a sustainable fashion without any changes to the cooling measures, be extremely caution when deciding your entry point to purchase a property in Singapore. This could be a dead cat bounce.
What I advise my friends and clients?
If you are the retail investor-wanna-be with strong reliance on emotion and peer influences, I would advise you to stay out until the true recovery happens. If you have more technical knowledge or a good wise realtor, always account for the chances of dead cat bounce in your analysis of an entry point when comparing with other investment alternatives.