The Beginning Of Price Capitulation
A report from the New York Observer. “In 2011, in Nassau County five homes were sold for more than $10 million. Four were sold to buyers from China. Of those, Shawn Elliot sold three. Mr. Elliott estimates that today more than 50 percent of houses traded on the Gold Coast that cost $5 million or more go to Chinese buyers. To service the demand, his firm now maintains dedicated phone lines manned by Mandarin-speaking representatives—a practice not uncommon among New York City agencies.”
“Why, then, are so many newly minted millionaires eager to flee the land that lined their pockets at such depth and speed? ‘Simply parking money in an account is not very attractive,’ said Kenneth Pomeranz, a professor of Chinese history at the University of Chicago. ‘And there is a feeling that the domestic real estate market is overheated and that there will be a correction.’”
“High-profile prosecutions emphasized invigorated anti-corruption efforts. Many lesser offenders—and even those who haven’t done anything wrong—also have cause for concern. ‘Lots and lots of people have gotten rich that have ties to the state bureaucracy in one way or another,’ Mr. Pomeranz told me. Some fear the loss of ill-gotten gains, while others may simply be nervous about the questionable dealings of business partners. ‘Or they may be in a gray area. Rules in some cases were vague. Or rules were sufficiently unrealistic that everyone was violating them.’”
Sourceable on California. “According to DataQuick, areas where prices have raced past their pre-GFC peak include Walnut, Temple City, San Marino, as well as swathes of San Gabriel and East San Gabriel – all renowned for their popularity with cash-flush buyers from the Chinese community. In Arcadia’s 91007 ZIP code, median home sale prices climbed over the $1.32 million threshold last quarter, putting them 30.5 per cent above the area’s peak in 2007.”
“The geographic scope of investment enthusiasm is rapidly expanding to encompass San Marino, Orange County, and even Las Vegas in the state of Nevada next door. The wave of Chinese buying in California is unlikely to abate anytime soon. The Shanghai-based Hurun Report has found that over 60 per cent of China’s new affluent class have already left or plan to leave the country, with the United States figuring as their top relocation choice.”
The Monterey Herald in California. “Your new neighbor is more likely to come from Shanghai than the Monterey Peninsula, according to real estate guru Alain Pinel. He told a story about one Chinese man buying up three homes in Northern California for more than $20 million each in the past six months. ‘Let’s face it. Monterey is not bought by people who live in Monterey,’ he said. ‘Well, maybe some, 5 to 10 percent, but most people come from another place.’”
The Daily Telegraph on Hong Kong. “The restaurants are fully booked, the shops are packed, the financial markets are booming. For Hong Kong things have, on the face of it, never been so good. The Chinese influx, while profitable, has not been to the taste of all the territory’s citizens, who blame ‘the locusts’ for pushing up home prices and forcing them out of central districts. At the same time, Hong Kong has continued to hold the dubious distinction of topping The Economist’s ‘crony-capitalism’ index, with billionaires estimated to have squirrelled away fortunes equivalent to nearly 60pc of GDP, more than treble the level in second-placed Russia.”
“Over the past five years the largest and most rapid expansion in credit in history that has transformed the People’s Republic of China into the world’s second largest economy on the back of a construction and manufacturing boom without precedent. ‘This is a PRC [People’s Republic of China] town,’ says one senior Hong Kong-based banker. ‘A decade ago, if you heard someone speaking Mandarin, you assumed they had accidentally walked over the border. Today, you can’t get a good job unless you speak it.’”
“Asianomics, a Hong Kong-based research firm, thinks the current upcycle is masking the tell-tale signs of a sharp and possibly unprecedented correction. ‘A nasty downturn in China and a sudden sharp correction in the Hong Kong property market would severely buffet the territory’s economy. China’s problems have become insurmountable and the likelihood that 2014 will prove the year of reckoning is growing,’ says Sharmila Whelan, an analyst at Asianomics.”
NTD TV on China. “This year, Renminbi has dropped so badly that domestic housing, export, and production index have declined. Consequently, the dollars go out and local debts go up. The phenomenon is believed to be breaking the myth of the economic growth in China. Financial expert Rex Zhou believes that economic failure in China, is most likely due to mass printing of RMB during the global financial crisis in 2008. Rex Zhou: ‘The supposed layoffs and factory closures were saved by the mass printing of RMB, lasting for a good couple of years. But now the problems are surfacing. I believe it is more of an issue caused by the monetary policy during the 2008 financial crisis, not necessarily due to the withdrawal of the Fed’s reserve.’”
“Mr. Cheng, anonymous Chinese economist: ‘History does not develop according to the will of an individual or a group. The biggest problems in China’s financial system, are that it is not fair and it is not open. When the development is getting more narrow and restricted by discrimination and suppression, it is only wise to escape.’”
The Australian Financial Review on China. “Security guards provide the first hint of trouble. An even dozen of them line the stairs leading to a sales office on the fringes of this coastal city in eastern China. It’s a tunnel of camouflage, which prospective property buyers must pass through before entering the main building. And that’s just the outside security detail. The muscle is not in place to control would-be buyers. It’s been brought in by the developer, New Century Real Estate, to intimidate protesters who have spent the last three weeks picketing the company.”
“The messy property dispute shows that, contrary to popular belief, Chinese home buyers are indeed carrying a significant degree of leverage and that in many cases two generations of wealth is required to buy an apartment, even in an outlying city. It’s about the nascent signs of an upset that could derail China’s credit markets and send shock waves through the global economy.”
“In the space of just two years, Guan Enwei’s decision to buy an off-the-plan apartment from New Century has wiped out the life savings of his family. Worse still, if Guan sold tomorrow he would owe the bank money, even though his apartment won’t be completed for 18 months. Guan and the 700 other buyers in the ‘Noble Garden’development are in this situation because New Century began slashing prices on March 21, in a bid to clear excess stock. Overnight it cut the price of 300 unsold apartments in their complex by 30 per cent.”
“‘The apartment across the hall from mine is now selling for 600,000 yuan ($105,000) less than I paid,’ says Guan. ‘The developer needs quick money. We think the company is in trouble. All the savings my father accumulated are now are gone,’ Guan says. And he can’t just walk away either. In another quirk of the Chinese system, buyers like Guan pay the full amount on day one, when they agree to buy a property off the plan.”
“Chen Lianfeng, a 46-year-old taxi driver, is among the most highly geared. She used all her savings to fund half the deposit, with the remaining 130,000 yuan borrowed from friends and family. That means she really only has a 10 per cent stake in the apartment, which is now worth significantly less than she has borrowed. ‘This price-drop has wiped out 10 years of savings for me,’ she says.”
“In the development next door the situation is even worse. New Century completed 144 luxury villas in October last year, but one owner said just 30 per cent had been sold. ‘They are offering a 35 per cent discount but there are still no buyers,’ said Mr Tao, who would only provide his surname. The steel trader said he paid 8 million yuan for his five-level, 600-square-metre villa and will spend another 4 million yuan fitting out the shell. That’s a 12 million yuan property, which might be worth half this amount if it were put on the market tomorrow. These discounts, which have only surfaced this year, look to be the beginning of price capitulation in provincial cities across China.”
“‘The oversupply in lower-tier cities is very obvious,’ says Andy Chang, an associate director at Fitch Ratings in Hong Kong. ‘I wouldn’t be surprised to see more and more local developers collapse.’”
Robert Shiller takes a thermometer to Chinese housing
Peter Cai
7 Apr, 7:56 AM 1
Professor Robert Shiller of Yale University knows a thing or two about asset bubbles: He was jointly awarded the Nobel Prize in Economics with Eugene Fama and Lars Hansen for their pioneering work on the analysis of asset prices. He predicted and warned about two great stockmarket crashes in recent US history — the tech crunch in 2000 and the subprime housing meltdown in 2008. He first warned about the danger of a housing bubble back in 2003, when bankers were still busy minting mortgage-backed securities. Few listened to him.
The economist warned in a syndicated column a year before the collapse of Lehman Brothers that the US housing bubble, which saw prices soar 86 per cent in real, inflation-corrected terms from 1996 to 2006, was about to burst.
“The boom, and the widespread conviction that home prices could only go higher, led to a weakening of lending standards. Mortgage lenders seem to have believed that home buyers would not default, because rising prices would make keeping up with their payments very attractive,” he warned presciently.
…
“Over the past five years the largest and most rapid expansion in credit in history that has transformed the People’s Republic of China into the world’s second largest economy on the back of a construction and manufacturing boom without precedent. ‘This is a PRC [People’s Republic of China] town,’ says one senior Hong Kong-based banker. ‘A decade ago, if you heard someone speaking Mandarin, you assumed they had accidentally walked over the border. Today, you can’t get a good job unless you speak it.’”
If this article had been written in the late-1980s, it would have been about Japan, not China.
China is still a third world dictatorship. Ghost cities and slave labor. Wonderful.
If this article had been written in the late-1980s, it would have been about Japan, not China ??
Yes, and the Japanese took their lumps in some area’s of investment…Golf Links in Carmel come to mind…With that said, the Japanese are already here and settled…There is likely continued investment from them but the “new wave” is China’s wealthy both legal & corrupt just like the article indicates…
Add to that India and other “wealthy” from any number of countries and we get these spikes in prices due to the shear impact of the wave of cash…
Ben’s research show’s it…Its happening in many locations in America and in other countries also…
“Over the past five years the largest and most rapid expansion in credit in history that has transformed the People’s Republic of China into the world’s second largest economy on the back of a construction and manufacturing boom without precedent. ‘This is a PRC [People’s Republic of China] town,’ says one senior Hong Kong-based banker.”
It should be called the PRC [People's Republic of Credit].
http://english.people.com.cn/90778/8040481.html
There is a lot of room for a country to grow when it has a 50% savings rate. More affordable housing would go a long way to boosting consumption in other areas of the economy. This would lead to even more income for the average Chinese worker.
Just check out the hour long vid by a brit “How China fooled the World” -like I’m sure many on this blog have…China IMO acted as a filler for the American asset bubble in 2008. They picked up where we left off and that along with 10 tril of buying thru State and Ghost banks supplanted a vaccuum in World money flow. This, along with 6 tril of US and Jap and EU stimulus-easing created a “soft landing” for a 2008 bubble that should have led to widespread depression, starvation, and unrest. Now that this spigot has run dry where’s the next wave of liquidity coming from? If you cant fathom the answer and given that World banks have no more bullets at their disposal…what’s next?
“When is housing massively overpriced? It’s quite simple. When the price of the house is in excess of the cost to build (lot, materials, labor and profit), less depreciation for a used house.”
Exactly. No need to confuse it. Our cost to build a SFR is right around $55/sq ft, with profit.
Fairfax, VA Housing Prices Lose 12% YoY
http://www.movoto.com/fairfax-va/market-trends/
Would you mind posting these in the bits bucket? I appreciate them but in a posting like today’s, they are spam and break up the conversation.
They’re stand alone posts that aren’t breaking up threads. I will continue to post them here.
Would you mind posting these in the bits bucket? I appreciate them but in a posting like today’s, they are spam and break up the conversation ??
Don’t ask HA to do something thats internal to his daily function of getting by….Just ignore him…If nobody ever responded to anything he posts, maybe he will go away…Courtesy is not part of his MO…
^
Says “the contractor” who advises everyone to ignore my posts but can’t seem to do it himself.
There’s a solution for you Snake Charmer. Use the Joshua Tree Extension and put my posts on ignore.
You know guys, I’m really not in the mood for this crap today.
+1
Nobody rattled your chain J._Fraud.
“Danville Realtor Gets 18 Years for Child Molestation”
http://pleasanthill.patch.com/groups/police-and-fire/p/danville-realtor-gets-18-years-for-child-molestation
An oligarch’s wet dream. This is peek into the future folks, where a small elite of zillionires owns everything and there is a tiny middle class.
Have you ever wondered why the false narrative plays so well?
‘Inventory of unsold houses in China’s first and second-tier cities have reached the highest level in the past five years. The land area of properties sold in the country in the first quarter of the year has also plunged at least 20% from last year, reports our Chinese-language sister paper Want Daily.’
‘Beijing has reported a 55% drop in the area of properties sold while the figures in Shenzhen and Hangzhou both decreased more than 30%. Shanghai, Chongqing and Nanjing also saw drops of over 20%.’
‘A loss of high-end customers is said to be a key factor putting pressure on the property markets in first-tier cities. Since Chinese New Year in February, a number of people from Shanghai have gone to Australia to buy property. This group would previously have been the main target for the high-end property market in China.’
‘The number of private-home completions in Hong Kong this year will reach its highest since 2004, said the government yesterday, further pressuring developers after a series of cooling measures forced them to cut prices.’
‘The number of flats forecast for completion this year is around 17,610 — a 113 per cent increase from a year earlier, said the Rating and Valuation Department.’
‘Hong Kong private-home prices have more than doubled — rising nearly 120 per cent — since 2008.’
It’s interesting that we see a glut of houses coming to market in Hong Kong, the most expensive city in the world. Could this mean the same could happen in places like San Francisco? Or even Manteca?
Housing Inventory up up up!
Housing Demand down down down!
“over 60 per cent of China’s new affluent class have already left or plan to leave the country…”
Could they be far from closing the exits and jailing people who bought $20 million houses in the USA with ill gotten gains?
who bought $20 million houses in the USA with ill gotten gains ??
Will see….But guess what…The seller who walked away with 20-mil has nice clean cash…Likely does not matter to him/her where it came from..
60 percent of 1 percent.
‘Currently a variety of data shows that China’s economy is slowing down…Wang Jianguo, tutor, Guanghua School of Management, Peking University: “Overall, I think the short-term stimulus is necessary. However, it cannot solve the fundamental problem. The fundamental problem is regulation; it has to turn a controlled market economy into a market economy with free competition. As control and corruption sit hand in hand, if you are neither relaxing control, nor fighting corruption, the economy cannot survive.”
‘Wang Jianguo also highlights that currently China is facing a dilemma. If they do not implement anti-corruption initiatives, people will continue to become angry. If they implement anti-corruption, government officials will lose power, so many industries now exist under depression.’
‘In addition, professionals worry that, the currency issue has reached more than 110 million RMB. This is more than double the GDP…Wang Jianguo: “The Chinese economy is not currently active and circulated. The printed money has become dead, like water becoming ice. If they print more money, once the economy improves, there will be an economic bubble and financial crisis.”
Looks like an economy based on buying and selling each other houses doesn’t work so well after all.
‘Agricultural Bank of China Ltd., the nation’s third-largest lender by market value, alerted its branches about credit risk from property lending, according to two people familiar with the matter.’
‘The bank circulated a letter saying price cuts at housing projects in some smaller Chinese cities had caused a panic in the property market, according to the two people, who asked not to be identified because the notice wasn’t public.’
“Early signs of the property market cooling may have emerged and we continue to see the property sector as the top risk for China’s economy,” Zhang Zhiwei, chief economist at Nomura Holdings Inc. in Hong Kong, wrote in an e-mail today. “China’s property sector is significantly overinvested.”
‘China’s home sales fell 5 percent in the first two months of the year from the same period last year, the statistics bureau reported March 13. That compared with an almost doubling in sales in the first two months of 2013.’
‘Chinese banks’ nonperforming loans increased for the ninth straight quarter in the three months through December to the highest level since the 2008 financial crisis, CBRC data show.
Two phone calls to the regulator’s press office in Beijing went unanswered.’
‘The Coldwell Banker Previews International survey ranked Woodside, Calif., in the heart of Silicon Valley, as the nation’s top luxury market. Among the top five luxury markets in the country—as ranked by prices and sales volume—three are in the Valley.’
‘Bankers, venture capitalists, hedge funders and scores of other finance types who feed off the tech industry are also flocking to the Valley. Foreign buyers are also drifting in, mainly from China.’
‘Of course, if the tech boom starts to fizzle, so would the Silicon Valley real estate market. But for now, even modest homes in the area have become real estate gold.’
‘One of the cheapest homes for sale right now in Woodside is a little red cottage on less than an acre. The home has two bedrooms, one bath and a fireplace. Price tag? $949,000. Perhaps anything under $1 million in Woodside is now considered affordable housing.’
There are only 5000 people in Woodside. Almost all of the properties are more than an acre - very few are on less than an acre and those are offset by being the closest in to the main strip.
Woodside is expensive and always has been. Having said that, the one house that sold for 100 million dollars is skewing the actual scene. A few houses have sold in woodside. The rest are just sitting there and there are foreclosures.
I actually think Woodside’s time has passed - all the new money is going into the city (SF).
‘The Weekend AFR ran an article warning of the declining quality of high rise apartment developments in Melbourne, which are increasingly being built to satisfy the needs of international and local investors, rather than local families, leading to a proliferation of small sub-standard homes that risk becoming tomorrow’s slums’
‘While overall construction levels are high, this is being driven predominantly by apartments, whose share recently rose above 50% for the first time. Meanwhile, the size of apartments has been shrinking making them unsuitable for most local buyers. According to recent reports in The AFR, the average size of an apartment five years ago was 60 square metres, whereas today it is between 42 and 45 square metres and falling. There are also frequent reports of many of the apartments sold to foreigners being kept empty.’
‘In many ways, Melbourne’s housing market is increasingly being geared for “export” to foreign investors, as well as for local SMSFs, rather than meeting the needs of locals. As a result, the surge in apartment construction is failing to alleviate affordability pressures or perceived housing shortages, since the homes most locals demand remain in relatively short supply.’
‘The risk is that with the low level of fundamental demand for high rise apartments, as well as the inherent long lead times between approval and completion (typically around three years), there is greater potential for a sharp slowdown and glut if/when investor demand evapourates.’
‘Arguably, the situation developing in Melbourne is similar to what transpired in Ireland, where a large number of sub-standard homes were constructed in places where locals did not want to live (the so-called “ghost estates”), exacerbating the eventual downturn.’
Paso Robles CA Housing Prices Collapse 25% YoY; Inventory Skyrockets 186%
http://www.movoto.com/paso-robles-ca/market-trends/
Ventura CA Housing Prices Crater 22% YoY; DOM Triples
http://www.movoto.com/ventura-ca/market-trends/
Santa Barbara, CA Housing Prices Dive 11%; Inventory Explodes 142%
http://www.movoto.com/santa-barbara-ca/market-trends/
‘The United States warned Beijing on Monday that the recent depreciation of the Chinese currency could raise “serious concerns” if it signaled a policy shift away from allowing market-determined exchange rates.’
‘Washington has been pressing China for years to allow its currency to trade at stronger values…”If the recent currency weakness signals a change in China’s policy away from allowing adjustment and moving toward a market-determined exchange rate, that would raise serious concerns,” the official, who asked not to be named, told journalists in a phone call.’
‘The United States also appears likely to pressure Europe at the meetings to act more decisively to fix its troubled banking sector.’
‘The Treasury official said recent economic data from Europe showed the region was experiencing “chronic low inflation and weak demand.” That appeared to be a nod to growing concerns that Europe’s economy is so weak it risks falling into a dangerous spiral of falling prices and wages known as deflation.’
‘The official had blunt words for other economic powers as well, saying that Japan should avoid engaging in too much fiscal austerity.’
From the comments:
‘Like the U.S. has the right to accuse China of any kind of manipulation? The U.S. manipulates everything financial. We no longer have free markets. All of it is manipulated by the Fed and the Wall Street banks. Every stat the U.S. provides is make-believe. GDP, CPI and Unemployment are all made up to make things look rosier than everyone knows they are. Interest rates… completely manipulated. Gold prices… completely manipulated. Please…!!! What are we going to do, threaten to stop borrowing their money???’
‘The official had blunt words for other economic powers as well, saying that Japan should avoid engaging in too much fiscal austerity.’
So other countries wanting to behave in a fiscally correct way is somehow a threat to the USA? How topsy turvy is that?
Torrance CA Housing Prices Sink 8% YoY; Inventory Explodes 83%
http://www.movoto.com/torrance-ca/market-trends/
“If you have to borrow for 15 or 30 years, it’s not affordable nor can you afford it.”
Especially when the borrowed money is used to buy a depreciating asset like a house.
“Mortgage Originations Plunge To Lowest On Record”
http://www.zerohedge.com/news/2014-04-07/mortgage-originations-plunge-lowest-record
What happens when the price of an item is grossly inflated? Demand collapses.
What happens when you create too many items? Excess inventory.
‘Adjustable-rate mortgages—the apocalyptical financial product of the recent economic collapse—are coming back in a big way. Of course, the banks insist that this time it’ll be different. At the moment, they’re targeting only high-net worth borrowers. According to a study that was developed for the Wall Street Journal, during the fourth quarter of 2013, roughly one-third of mortgages that ranged between $400,000 and $1 million, and nearly two-thirds of those over $1 million, were adjustable-rate mortgages.’
‘But U.S. banks are under earnings pressure these days. Profit margins are shrinking, in part because demand for loans—mortgages in particular—has fallen off as interest rates have begun to rise and the economic recovery remains uncertain. Consequently, it’s reasonable to anticipate that lenders will once again rationalize their way to broadening the scope of their marketing efforts by relaxing credit underwriting standards. It also helps that ARMs end up shifting to borrowers the interest rate risk the lenders would otherwise have to take with fixed-rate loans.’
heh heh “Combustible Adjustables”.
What little demand for housing 2007-current has been very weak hands…. now to get a whole lot weaker. The aggregation of the previous debacle and the current will turn out to be a major clusterf_ck of epic proportions.
LOL!!! Earnings pressure. Gone are the days of providing an actual service at a reasonable price. Greed has striped out fundamentals.
Tampa, FL Housing Prices Dive 9% As Inventory Balloons 55%
http://www.movoto.com/tampa-fl/market-trends/
I was sent this yesterday…great data. I’m posting because there are lots of charts relating to China.
http://www.businessinsider.com/the-most-important-charts-in-the-world-2014-4?op=1
my county may go up 8.5% on re taxes- that should kill any hope
Too bad you guys don’t have any say on local tax increases.
Even though our house is assessed about 40% more than when we bought it 15 years ago, we pay less property tax (about 10% less) than back then.
Got TABOR?
we need tabor
hold the pot
The MJ is optional
Online advice from Nov. 2011 to Americans thinking of going to teach in mainland China, illustrating more than just financial & political influences on Chinese money moving abroad:
—
I have no reason to think this health situation has improved in 2 1/2 years.
Hmmm. I would think your immune system would eventually adapt to food issues. But life is cheap there. And it’s the air pollution that concerns me when it comes to long term exposure.
The Housing Bubble Is Back
Karl Smith Karl Smith, Contributor
http://www.forbes.com/sites/modeledbehavior/2013/03/25/the-housing-bubble-is-back/
Cullen Roche is worried that the trajectory of housing prices might deviate from what practical assumptions would predict
Real estate returns are not rocket science. Because they’re such a huge portion of the consumer balance sheet they tend to be tied very closely to wage growth. Wage growth, by definition, is very closely tied to the rate of inflation. That explains why the long-term historical return of real estate is roughly in-line with the rate of inflation. But this survey from Zillow shows that real estate “investors” are probably still too optimistic.
I can see why these assumptions are attractive, but they are not quite what drops out of macroeconomic analysis.
Fundamental Upward Pressure of Prices
Wage growth, per se, shouldn’t drive housing prices. What we might expect is that wage growth drives rents and rents drive housing prices.
The wage-rent relationship, however, is not an iron law…..
……Some time in the near future it is very likely that credit standards for homebuyers will fall. This will allow homebuyers to make larger offers and it will allow young people to buy a home even when they lack a down payment.
This rapid increase in the number of buyers and their purchasing power will likely drive home prices into a bubble. Likely not as large as 2005, but it’s not out of the question that the bubble could be even larger.
We might think – “didn’t lenders learn their lesson?” Or perhaps, “see this is what we get when we create moral hazard.”
Welcome to 2014 Lola.
Housing Analist - I’m still waiting on your company’s contact info. Please let us all know so that we can start building houses for $50/sq. foot.
We’re still waiting for your plans and specs. Why are you delaying your own work?
I need to know where to send the plans and specs. Hello…
The same address you sent whining emails to 6 months ago.
rjbsite.civil@gmail.com
“@gmail” is your company’s email? Lol okay. I sent an email anyway, hopefully someone responds. You never said the name of your company though?
You don’t read too well do you?
You are seeing it here first on Ben’s blog. The current housing bubble in the US (phase 2) is going to end with a bang. Part 1 was caused by loose money and part 2 is caused by loose money and Chinese buyers inflating markets such as California. China is near its limit and it’s about to implode. That will drive down U.S. prices and it will happen very soon.
Let’s recap a bit of this China news. Last year, in May or June, there was a minor credit scare. It happened again early this year. A couple of bond defaults, suddenly news of developer prices cuts a month or so ago. First in 3rd and 4th tier cities. Now everywhere. A few weeks ago a sales office in Hong Kong got trashed by some FB’s. Then out came the protest signs on bamboo sticks. Now we see dozens of armed men guarding a sales office every day.
One thing I’ve noticed from reading these escalations; the FB’s are pissed and surprised at the government for not bailing them out. And they are pissed at the developers, who, according to them, lied and broke promises.
One thing I’ve noticed from reading these escalations; the FB’s are pissed and surprised at the government for not bailing them out.
However, that leads to the question on whether the government has the resources to bail them out. Take a look at this link below and compare Russia, China and the United States. If you listen to the MSM, Russia and China are the closest to an economic implosion. However, judging by the data in this link, the U.S. has the least ability to control its own economy since its debt levels give it the least flexibility. Russia is actually in far better shape economically than the U.S. to withstand a global recession since it has room for deficit spending.
http://www.economist.com/content/global_debt_clock
If you listen to the MSM, Russia and China are the closest to an economic implosion
I don’t think that this is an accident. Right now Russia and China want the U.S. to lose its special reserve currency status. The PTB have a vested interest in making the Chinese situation looks worse than it is to prevent more trade being in the Yuan instead of the dollar. Does that mean that there isn’t a housing bubble and China ? Absolutely not. However, I think that China has more real demand for housing than in the U.S. and much of the attention paid by the MSM to China is misdirection to keep people from seeing how deeply indebted the U.S. is becoming both in public and private debt.
and China= in China
‘the question on whether the government has the resources to bail them out’
It’s said that the chicoms have $3 trillion in reserves. They printed $15 trillion since 2008. It doesn’t look like they have near enough to bail everybody out. They could try to print their way out of it. A lot of money is going to go poof, but that’s where it came from anyway. But supposedly they are trying to get closer to a market-based economy. Can’t do that and bail every one out every time. No one will take debt seriously. Then there’s this:
‘Mr. Cheng, anonymous Chinese economist: ‘History does not develop according to the will of an individual or a group. The biggest problems in China’s financial system, are that it is not fair and it is not open. When the development is getting more narrow and restricted by discrimination and suppression, it is only wise to escape.’
It’s not often an economist has to be quoted anonymously.
Can’t do that and bail every one out every time. No one will take debt seriously.
Can’t agree more and that is the problem the U.S. has now. As far as China, I think that they intend to teach some speculators a lesson, however, I think they do have the resources to keep the bursting housing bubble from taking down the rest of the economy and that is what I believe they will do with their resources not try to keep the bubble inflated.
A housing bubble is bad for the economy. It mis-allocates resources and the debt is a burden on the people. They’ll be better off eventually. But they won’t feel as rich as they do now; that’s an illusion.
One thing about all this; we’ve seen maybe 25 or 30 countries reinflate bubbles to some degree. (Vietnam, for instance, couldn’t pull it off). We haven’t seen one do it a third time.
I think in 2008-09 we faced the question do we save the U.S. economy or do we save the lenders who have made irresponsible loans. Bobama chose to save the lenders. Programs such as the tax credit to buy houses etc. were to keep housing prices from falling. We could have allowed the market to reset and make houses more affordable but that would have wiped out the capital of many of the big lenders and a lot of really wealthy people would have lost their wealth.
Of course, having so much “wealth” go poof would have hurt the general economy but that could have been offset by infrastructure spending and going all out to reach energy independence. That is drill baby drill on private and public lands but also promoting wind power in the Great Plains etc.
China facing a similar problem seems more willing to let the lenders face the music and will stimulate the economy in the non-housing areas.
No third time?… but but, you mean its not different this time?!?
http://www.youtube.com/watch?v=y8Kyi0WNg40
That actually made me laugh out loud.
No, what I’m saying is we don’t know if after a secondary leg of a bubble, it can be instigated another time. (This is where the idea of a second bubble versus the same bubble comes in.) IMO this is the same bubble, which was interrupted by massive central bank programs and government actions. This didn’t happen in Japan, to my knowledge:
http://thenewmortgagecompany.files.wordpress.com/2010/07/japanese-real-estate-bubble-chart-and-us.png
(BTW, this chart stops at 2010, I believe, so take that SF line back to the peak.)
The Japanese tried; Bernanke and his helicopter brigades looked at the Japan experience and decided to go all out, from 14 central banks at least, flooding the world with paper money. This was their great experiment, and I am saying I don’t know that it can be run up again. What’s happened since 2007 has never happened and what’s ahead is unknowable. I happen to believe this has been an historic mistake.
“We haven’t seen one do it a third time.”
Has there ever been a time when the only thing left to borrow is Fiat?
This China thing is getting more interesting Ben. It will certainly affect the U.S. real estate bubble. Particularly with only $3 trillion in funds out of a debt of $15 trillion - and China probably won’t bail out its lenders.
The FBs protesting price cuts (sometimes violently) in their own neighborhoods are part of a stage. What is next? Another Tianneman Square ordeal with guns shooting down FBs? It could get very fugly. And it will compound the wealth destruction, panic the Chinese citizens and China might just reestablish controls on its borders - the houses that Chinese people bought in the USA - what will happen to them? I guess unless some pre-arranged offshore business out of China’s grasp does not pay the property taxes and upkeep on the houses here in California, well you know, it will bring down the places here too. It will be a free for all.
Great post and chart Jonesy. You say “bring that line back up to the peak” as that is where SF is so do that and take a look. Does it just plain look counter-intuitive to you? There is nothing there to sustain it. No support. In the construction biz, we have a generations old joke about using sky cranes. “How the ___ are we gonna get it up there? A sky crane of course!” And when we finally get a real crane out there and fly something really heavy, you just don’t want to be standing under the load. That’s all you can think about—Stay the hell out from under the load. Well that chart looks like a heavy load being flown with a sky crane.
AKA “Sky Hook”.
Between depreciation which occurs naturally and imposes massive losses on the owner and deflationary forces, imagine just how little a house is worth right now.
“Chen Lianfeng, a 46-year-old taxi driver, is among the most highly geared. She used all her savings to fund half the deposit, with the remaining 130,000 yuan borrowed from friends and family. That means she really only has a 10 per cent stake in the apartment, which is now worth significantly less than she has borrowed. ‘This price-drop has wiped out 10 years of savings for me,’ she says.”
This would be absolutely hilarious if it weren’t so pathetically sad. People are greedy and stupid.
I suppose a couple generations ago under Maoism, no one could own any house. So they have not had previous generations’ mistakes to learn from. The Chinese are feeling the wrench of hard reality.
‘After the heated housing market of 2013, an even hotter 2014 was widely expected for the 400 corridor. But this year the market has started more slowly than many had predicted, myself included. There are a couple of telling data points.’
‘While inventory is flat compared to this time last year, the number of pending sales (homes that are under contract) is down over 40 percent in Forsyth County.’
‘The numbers are similar in North Fulton, with inventory down slightly, but pending sales down nearly 60 percent compared to this time last year.’
‘It seemed that the low inventory last year created a strong urgency and pushed buyers into grabbing what they could as soon as possible.’
Man, I hope those buyers didn’t pay too much!
You remember the Chinese drywall episode?? I wonder how much of that drywall found its way into these empty cities. Also , i wonder just how good the building codes are in that society. I wonder what happens when all the units turn on the power, or water, etc. I bet it is a mess that will go on for decades. You would think the oldest society on the planet would have better brains, but for them , it is all about the buck. It was not that long ago , you could get a framing inspection in Virginia with an envelope. I can only imagine what went on in China, but when this puppy blows, get ready for another round of a different kind of financial failures , such as oil at $38 a barrel, and the commodity traders busted like trees in a hurricane.