August 15, 2018

The Lipstick Effect Has Emerged In China

A report from the South China Morning Post. “Mr Shen Weipeng is a 29-year-old trust manager in Beijing, working in one of the highest-paid vocations in China. His after-tax income last year was about 260,000 yuan (S$52,000). He decided to cut his spending this year by replacing his favourite cocktail with water, cancelling a planned trip to Europe and sticking with his current mobile phone even though the screen is badly cracked.”

“Mr Shen said he was trying to save money because he had a monthly mortgage payment of 11,000 yuan on his flat and was concerned about his income prospects, with the government’s crackdown on shadow banking having significantly reduced average incomes in the trust investment industry. ‘I just have no better choice than to cut back on my spending,’ he said. ‘My income was cut by about 30 per cent this year from a year earlier because of the broad downturn in my industry.’”

“Mr Shen’s financial situation is not unusual in China, where discretionary spending is often limited by a large mortgage payment and confidence about future income has been undermined by a less optimistic economic outlook. At the end of last year, total outstanding individual mortgage loans and borrowing from the public housing fund rose to 26.4 trillion yuan, meaning that housing-related loans made up 57 per cent of overall household debt, according to government data.”

“Considering that many Chinese use consumer loans to come up with the down payment on a house or to help pay their monthly mortgage bill, the weight of real estate debt on purchasing power is even heavier. Mr Qin Han, chief fixed-income analyst at Guotai Junan Securities, wrote in a research note last month about the recent emergence of the ‘consumption downgrade’ phenomenon. ‘Mortgages are an obstacle to consumption that cannot be avoided,’ he said. ‘Rents are also significantly squeezing consumer spending.’”

“‘The lipstick effect has emerged in China,’ Mr Li Xunlei, chief economist with Zhongtai Securities, told the South China Morning Post, referring to the phenomenon of consumers being more willing to buy less costly luxury goods instead of more expensive ones.”

“A number of articles on how to change one’s lifestyle to save money have gone viral on Chinese social media this year. ‘No afternoon tea, just use the time to diet,’ one article advised. ‘No more taxis or ride hailing, buses and shared bikes will do. And no new clothes; after all, work uniforms should be fine.’ One question posted on Zhihu, the Chinese version of question-and-answer site Quora, about ‘how to downgrade consumption to survive 2018′ has attracted more than 1,300 answers and 17.5 million views.”

“The responses offered suggestions such as ‘no food delivery, no milk tea and no electronics upgrades’ as well as ‘cooking your own food, eating Lao Gan Ma chilli sauce (only 10 to 30 yuan) and pickled mustard.’”

From Bloomberg. “Signs that China’s attempts to cool its red-hot property market are working are hard to find: housing prices rose the most in 21 months in June, and as soon as authorities squelch one buying frenzy another pops up. Scratch below the surface though, and something interesting emerges — land is going unsold in some of the nation’s most-crowded cities as the government’s deleveraging campaign and a relentless flow of property curbs squeeze developers’ profit margins.”

“A total of 419 land sites went unsold in the first seven months of 2018, up 78% from a year earlier, data compiled by China Real Estate Information Corp. show. A slowdown in land acquisitions preceded the past two housing downturns, and the surge in failed sales suggests the pattern may be repeating. ‘The series of failed land auctions shows that the home market is already in a correction,’ said Zhang Hongwei, a research director at Tospur Real Estate Consulting Co. ‘Developers will face increasingly harder times ahead, becoming forced to take a steeper cut in prices.’”

“Three suburban plots in Guangzhou attracted no bids at six separate auctions this year, even as the asking price was continually cut. In Shanghai, a small site close to the city centre drew no offers earlier this month. Land has also gone unsold in Hangzhou, Suzhou and Hefei, all considered popular markets due to a scarcity of space.”

“‘Sometimes companies don’t have enough funds,’ Liu Wei, executive vice president at developer China Merchants Shekou Industrial Zone Holdings Co., said. ‘Sometimes, under the pricing curbs, you just give up after doing the math.’”

From the Global Times. “China is ramping up efforts to tighten real estate transactions, thwarting speculation that the nation might loosen restrictions on the real estate market to stimulate economic growth amid escalating China-US trade tension.According to media reports, banks in some Chinese cities have raised lending rates to curb overheating in the real estate market. In Beijing, the average increase in rates for first-home loans was 10 percent above the benchmark rate, and 20 percent for second-home loans. An employee at a bank in Beijing told the Global Times on Monday that his bank’s rate for first-home loans was 40 percent above the benchmark rate.”

“There has been speculation that China might loosen restrictions on the real estate market to stimulate economic growth amid escalating China-US trade tension, but an industry insider surnamed Dong predicted that the real estate regulations will be further strengthened, rather than relaxed in the next six months.”

“‘The Chinese economy is now facing both domestic and external challenges, but preventing financial risks is a much more important task than maintaining rapid growth,’ Dong said, adding that deleveraging and structural reforms should remain the government’s priority. Song Ding, a research fellow at the China Development Institute, warned that while it’s important ‘to curb the pace of price increases in the real estate market, it’s also important to prevent a slump, which might lead to a financial breakdown and a plunge in growth.’”

“Auctions of land have also seen a slump in recent months, and some cities have reported failures of land auctions. For example, in Taiyuan, North China’s Shanxi Province, auctions of eight plots of land were reported to have failed on Saturday, and there has been a similar situation in some first-tier cities, including Shanghai and Guangzhou, capital of South China’s Guangdong Province.”

The Asia Times. “Let’s allow Japan to answer this most impactful of economic questions. Through the prism of Tokyo’s long experience, the bears have it. Xi’s government, after all, is reading right from the Japan Inc playbook. After Japan’s bubble economy imploded around 1990, bureaucrats fell into a decade-plus cycle of one-step-forward-two-steps-back on deleveraging efforts. The pattern: Tokyo would get serious about reducing debt levels and then, at the first sign of slower gross domestic product or market fallout, reopen the credit spigot. Close, reopen, repeat.”

“It was only about 2002-2003 that then-Prime Minister Junichiro Koizumi prodded banks to write down bad loans. The costs of that dozen or so years of dithering are still being calculated today. Glacial and unsteady clean-up efforts explain why the Bank of Japan is still holding interest rates below zero. And why, after 18 years of toying with quantitative easing, Tokyo is barely halfway to 2% inflation.”

“President Xi Jinping wants to break a cycle with which Japan is still grappling. Granted, the timing seems terrible, as Donald Trump’s escalating trade war imperils China’s $12 trillion economy. And so, Xi’s two-year crackdown on shadow-banking is taking a backseat to GDP – again. In the weeks since Trump took direct aim at Beijing’s export engine, Xi rolled out fresh fiscal stimulus and tax cuts. The People’s Bank of China, meantime, is prodding banks to up lending and easing capital requirements.”

“Easier credit means it’s now cheaper for mainland banks to borrow from one another than from the central bank. They also mean local-government leaders have greater latitude to borrow anew. It’s troubling, then, that roughly 80% of the jump in bad loans last quarter was among rural commercial institutions. Declines in capital adequacy ratios, though notable throughout China, are most pronounced among smaller banks.”

“And therein lies the Japan-like threat to China’s future as a balanced, vibrant economy. Xi is running into an inconvenient financial truth: the more he prioritizes short-term GDP gain over pain, the more he prolongs an inevitable Chinese reckoning. We’ve seen this movie before. It won’t end any better for Beijing than it did for Tokyo.”

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Comment by Ben Jones
2018-08-15 05:33:15

‘One question about ‘how to downgrade consumption to survive 2018′ has attracted more than 1,300 answers and 17.5 million views. The responses offered suggestions such as ‘no food delivery, no milk tea and no electronics upgrades’ as well as ‘cooking your own food, eating Lao Gan Ma chilli sauce (only 10 to 30 yuan) and pickled mustard.’

The globalists say these chili and mustard eaters are about to take over the world.

Comment by Mafia Blocks
2018-08-15 05:45:47

Does chili sauce and pickled mustard make the crow and CraterTaters anymore tolerable.

Comment by Mr. Banker
2018-08-15 06:26:39

It helps to remove the feathers. Maybe even the entrails.

Comment by Professor 🐻
2018-08-15 07:42:38

It helps to remove the entrails before eating them.

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Comment by oxide
2018-08-15 06:40:09

Hope they don’t need to dip into their warehouse stockpiles of garlic.

Comment by Mortgage Watch
2018-08-15 05:33:21

Santa Monica, CA Housing Prices Crater 23% YOY As The Bottom Falls Out Of CA Housing Market

Comment by Ben Jones
2018-08-15 05:37:52

‘He decided to cut his spending this year by replacing his favourite cocktail with water, cancelling a planned trip to Europe and sticking with his current mobile phone even though the screen is badly cracked. Mr Shen said he was trying to save money because he had a monthly mortgage payment of 11,000 yuan on his flat’

Hey Shen, the trolls will tell you to stick with your shanty loan. Don’t become a renter! Get used to that water while they enjoy champagne, but you’ll laugh in the end when you rake up that sweet equity!

Pass the mustard Shen.

Comment by Mr. Banker
2018-08-15 06:24:55

“‘I just have no better choice than to cut back on my spending,’ he said.”

Well you do have another choice, Shen, and that is to stiff your lender but we know you will not make this choice because hope will forever be kept alive and we all know real estate always - ALWAYS - recovers its value after a downturn and thus it is, er, prudent to keep on making those payments no matter what the … the pain.

And also you need to remind your family and friends to do the same.

Comment by BlueSkye
2018-08-15 06:42:12

stiff your lender

Debt in China follows you to the grave. Put some things in a back pack and just disappear into the countryside?

Comment by Mr. Banker
2018-08-15 06:52:37

“Debt in China follows you to the grave.”

I like it. Student loans do something similar here in the U.S.

I would like to see the U.S. follow China’s lead and have all loans follow one to the grave.

Beyond the grave, if possible.

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Comment by hwy50ina49dodge
2018-08-15 07:50:43

Rehabilitation$ Mr. Banker, … bad credit$ make$ for more phophet$ to gather $ignatures on ble$$ed “Dotted Line$”

Comment by OneAgainstMany
2018-08-15 22:24:37

Beyond the grave, if possible.

Maybe the laws will be changed so that these 77-year-olds who are getting mortgages will bequeath their debt to their posterity. What an inheritance that would be!

Comment by rms
2018-08-15 08:13:29

“Put some things in a back pack and just disappear into the countryside?”

Hello Canada… and a new Note 8 has dropped to $400.

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Comment by Taxpayers
2018-08-15 06:36:38

Does China allow jingle mail?
A relative in florida is underwater . The bank refid the loan at age 77.

Comment by rms
2018-08-15 08:17:28

Wondering if s/he can be a squatter for five years or more?

Comment by oxide
2018-08-15 06:54:49

It’s the Chinese equivalent of that ol’ American criticism: “Kids these days just *have* to have their $5 coffee, the best clothes, the newest iPhone…” etc. But even a year of that flashy small stuff doesn’t even add up to one mortgage payment. I don’t begrudge them their bitter coffee.

Comment by rms
2018-08-15 08:20:02

“Kids these days just *have* to have their $5 coffee, the best clothes, the newest iPhone…”

The ladies too… no second rate schitt.

Comment by Ben Jones
2018-08-15 05:45:19

Locked Out: New Zealand Bans Foreigners From Buying Existing Homes
Wall Street Journal-4 hours ago
Now, as it tries to cool one of the world’s hottest housing markets, the country is banning … Tougher lending rules, stamp duties, and taxes on vacant investment …

Again, note the media isn’t calling New Zealand racist.

Comment by OneAgainstMany
2018-08-15 22:26:50

This is the type of protectionism that I could really get behind in the United States.

Comment by Mortgage Watch
2018-08-15 05:55:20

Littleton, CO Housing Prices Crater 11% YOY As Denver Area Mortgage Meltdown Accelerates

Comment by BlueSkye
2018-08-15 06:35:10

China’s future as a balanced, vibrant economy…

Degenerate Debt Donkeys know no such future.

Comment by Taxpayers
2018-08-15 06:38:59

Vacant,but maintained homes lower your taxes.
No kids in school which uses 55% of tax proceeds

Attachments owners please come to 22151 and buy freely

Comment by oxide
2018-08-15 06:58:44

rent to bigly families from c. america for cash flo?
mas hijos esta la escuela

Comment by Mortgage Watch
2018-08-15 06:47:24

Oakton, VA Housing Prices Crater 7% YOY As DC Workforce Reductions Crush Fairfax County Home Values

Comment by jeff
2018-08-15 07:24:46

New Luxury Condos available from the low $400s at Bleeding Palms

Comment by Professor 🐻
2018-08-15 07:46:34

Royal Bank of Scotland
RBS bankers joked about destroying the US housing market
Transcripts of pre-financial crisis conversations show senior bankers’ disregard for customers
Rob Davies
Wed 15 Aug 2018 07.08 EDT
Last modified on Wed 15 Aug 2018 08.12 EDT
A boarded up building in Cleveland, Ohio, in January 2008

RBS bankers joked about destroying the US housing market after making millions by trading loans that staff described as “total f###ing garbage”, according to transcripts released as part of a $4.9bn (£3.8bn) settlement with US prosecutors.

Details of internal conversations at the bank emerged just weeks before the 10-year anniversary of the financial crisis, which saw RBS rescued with a £45bn bailout from the UK government.

The US Department of Justice (DoJ) criticised RBS over its trade in residential mortgage backed securities (RMBS) – financial instruments underwritten by risky home loans that are cited as pivotal in the global banking crash.

Comment by hwy50ina49dodge
2018-08-15 07:53:58

“It won’t end any better for Beijing than it did for Tokyo.”

Didn’t end well in NYC either, a$k the Lehman Brother$

Comment by Professor 🐻
2018-08-15 07:54:24

Home prices: Even midsize cities are getting pricey, leading some buyers to smaller markets
Paul Davidson | USA TODAY
Updated 6:24 a.m. PDT Aug. 15, 2018
Home buying is the most stressful life event for some
According to a survey, buying a home is the most stressful life event for some. Elizabeth Keatinge has more.

U.S. home prices rose 6.8% year over year in June, a slightly slower growth rate than May’s 7.1%. Homes are overvalued in more than 40% of the nation’s top 100 metro areas. Show less
BlazenImages / Getty Images

A couple of years ago, freshly-minted college graduates Jon and Samantha Reidy crisscrossed North Carolina in search of a place to settle and buy a house.

After hitting seven cities – including bustling millennial enclaves such as Charlotte, Durham and Raleigh – they decided that nearly all of those housing markets had gotten too expensive. So they picked under-the-radar Winston-Salem.

Last year, they bought a house there for $106,000, including repairs, and plan to stay in the area for decades. Jon is even hoping to convince his parents to move down from Agawam, Mass.

“We have no intention of leaving,” says the 24-year-old athletic trainer. Besides its mix of urban amenities and laid-back pace, “Winston was a place we could afford.”

The 50 percent runup in U.S. home prices since 2011 is reshuffling the pecking order of hot housing markets. While many midsize metro areas that had been affordable, up-and-coming alternatives – such as Kansas City, Missouri; Nashville, Tennessee; Raleigh; and Salt Lake City – are still coveted by buyers, but their sales are declining or increasing more slowly amid sharply rising prices and shrinking supplies.

Meanwhile, many smaller, more affordable markets – such as Boise, Idaho; Dayton, Ohio; Greenville, South Carolina; and Winston-Salem – are benefiting from an influx of new residents and home sales that continue to climb.

“Even the second-tier markets are getting a little too pricey for a lot of residents,” economist Adam Kamins of Moody’s Analytics says. “Home prices are not rising as rapidly in the (third-tier) markets … and if you can get a good job there you may find a better quality of life.”

In second-tier metro areas – ranked 26th to 50th by population – single-family house prices increased 10 percent in the 12 months ending in the first quarter to a median of $343,000, according to Moody’s figures. Sales were virtually flat last year.

In Nashville, the median home price was up 8.6 percent annually at $263,000. That came on the heels of four consecutive years of double-digit price increases, Moody’s figures show. In the city and just beyond, the median home price tops $300,000. Nashville is a hotbed for tech, health care and aerospace companies, and its vibrant downtown is a millennial magnet.

But the soaring prices have taken a toll. Homeowners devote 35.1 percent of their monthly income to housing costs, up from a 27.8 percent average over the past 13 years, according to ATTOM Data Solutions. Metro area sales fell 4.3 percent in 2017 year and are down 0.5 percent so far this year.

“Things have slowed down,” says Sher Powers, an area broker and president of Greater Nashville Realtors. “It’s not a bad thing for the market. It can’t sustain itself endlessly. There has to be some correcting. It’s still a sellers’ market.”

Daniel Williams, 32, and his wife searched for an entry-level house for three months and lost out on three bids before finally purchasing a three-bedroom in the Antioch community. But they had to shell out $220,000 for it, well above the $180,000 they had budgeted.

“It makes me nervous,” says Williams, an auto mechanic. “I’ve never owned a home before.”

Domestic net migration – the net number of people moving into the Nashville area after accounting for those moving out – slowed to 18,700 in 2017 after topping 20,000 for two years, according to Moody’s and Census Bureau data

In Kansas City, another midsize city, home prices jumped 10.3 percent last year while sales fell about 10 percent, according to Moody’s. Some buyers have been priced out, but there also just aren’t enough homes available.

“We put a house on the market and the same day it’s going to be sold,” says Andrea Sheridan, a broker and president of the Kansas City Regional Association of Realtors.

Comment by Avg Joe
2018-08-15 09:13:38

Since when does it require a college degree to be an athletic trainer?

Comment by Carl Morris
2018-08-15 10:58:01

Since everybody else signed the dotted line special and got a degree. Now you have to choice but to do it too.

Comment by Avg Joe
2018-08-15 20:54:58

Or I can just hang a shingle and call myself an athletic trainer. What are people gonna do? Check my degree and transcripts?

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Comment by Carl Morris
2018-08-16 09:37:28

Rex-kwan-do. “Take a look at what I’m wearing, people. Do you think anybody wants a roundhouse kick to the face while I’m wearing these bad boys?”

The good jobs at places like college athletic departments will check, won’t they? But yeah, nobody cares at Rex-kwan-do.

Comment by rms
2018-08-15 08:27:47

Haven’t heard from “In Colorado” lately…

Comment by Mafia Blocks
2018-08-15 09:38:49

She took up a new name and shtick.

Comment by rms
2018-08-15 10:04:02

“H-1B: U.S. officials cracking down on Indian citizens”

“A crackdown on the controversial H-1B visa intended for skilled workers has struck Indian citizens harder than other foreign nationals, with federal officials hitting them with more visa denials and demands for proof of their eligibility to work.”

Comment by OneAgainstMany
2018-08-15 22:48:39

“consumption downgrade phenomenon”

“Mortgages are an obstacle to consumption that cannot be avoided.”

Sounds like all this belt tightening is going to lead to a fall in aggregate demand in China. Here in the US it seems like we’ve had some of this. The so-called “retail apocalypse” of the past few years is likely related to the crowding out of consumer purchases as housing/renting take up a larger share of income.

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