The Housing Bubble

Oh boy, this thing is moving fast:

‘China’s dramatic stock market collapse appears to be spilling over into the country’s real estate market, where investors are rushing to sell their homes or abandoning plans to buy a new property as they nurse hefty losses on equities, local media reports.’

‘Several Shanghai-based real estate agents told the China Daily that more apartments and villas had appeared on the market as investors tried to recoup their losses by selling their properties.’

‘Cui Aijun, a real estate agent at Shanghai Junda Property Services said that four of his clients were urgently selling their homes after getting burnt in the stock market, the government-run newspaper reported on Friday.’

“Some investors sold their stocks to buy properties in March and April. But now we see people selling properties after piling up losses in the stock market,” Cui told China Daily.’

‘Those looking for a quick sale typically offer their properties at a price that is 10 percent below the market average, the report said, citing a villa in Shanghai’s upscale Pudong New Area, which is on the market for 17 million yuan ($2.74 million), a steep discount to the other homes in the neighborhood, which are asking for 19 million yuan .’

Check this out Dan:

‘David Fung, vice chair of Canada China Business Council says the Chinese save up to 40 per cent of their disposable income to make up for that shortfall, but savings rates in China are below inflation and only guarantee a loss of income over time.’

So while you are getting your bib on, down to the comments:

‘The govt needs to step in and stop this. People who buy real estate should live in Canada for at least 5 years before they can buy and pay taxes…and only be allowed to buy ONE home and LIVE IN IT. It is the 1% per cent playing their games moving their money around with no real commitment to the place where they temporaily park their money. Lots of empty highrises and expensive mansions with lights off because the foreign owners do not reside there just parking money.’

‘I know a realtor who works in Vancouver. She told me that many of the buyers in Vancouver are Chinese government officials, and that many of them own 10 or 12 houses each.’

‘Oh, because their pseudo-Communist state doesn’t have pensions or employment insurance or health insurance we need to help them out by letting them invest here and drive up house prices, especially hurting our younger first-time buyers. I honestly don’t believe this. If our governments continue to turn a blind eye we should start some kind of civil disobedience. Maybe like refusing en masse to pay property tax and income tax.’

‘Now I know (if I didn’t already) why real estate signs in the desirable seafront part of Nanaimo are in Chinese only. Of course if you point this out you get called a racist, and by doing this the city council and realtors and developers shut down legitimate concern and rub their hands together at the prospect of making more money for themselves.’

‘Why are we handing the keys of the planet over to China? The West is throwing everything we fought so hard for in the last century away in the name of easy money. It is despicable. Remember that China is still a communist country with a deplorable record of human rights abuses, and environmental abuses, etc. All this dribble about the free market, and the global market place doesn’t make any sense. We gave away our manufacturing middle class. We gave away our high tech superiority. We are giving away our natural resources. Now we are giving away the very land stand on. And for what? What, exactly, is our future? Tourism? Service industry? Time to close the floodgates. Enough is enough. We need to protect our own interests from foreign profiteers (like China does, incidentally)’

‘Renting a home in the Denver metro area is more affordable than buying, according to a report released by RealtyTrac.’

‘A three-bedroom rental home in Denver County averages $1,696 a month and requires 39 percent of median household income, compared with an average monthly mortgage payment of $2,190 that requires 51 percent of income.’

“We are finding many first time homebuyers in a short-term-versus-long-term quandary along the Front Range in Colorado,” Re/Max Alliance owner broker Greg Smith said in a statement. “In today’s market, many buyers are not willing to take the leap to increase their monthly payment to lock in the fixed payment of a mortgage.”

‘Tao dreamed of buying a new car with his winnings from the stock market’s surge. A 32-year-old professional from Shanghai, he had been egged into investing by his friends and then by media stories of grannies making huge killings on shares.’

‘So he became one of China’s 90 million individual investors in stocks who account for 80 percent of all market transactions in a country where letting professionals manage your money through mutual funds has yet to catch on. There aren’t many places for ordinary Chinese people to put their savings, and the real estate market was weak. Equities looked like a one-way government-backed bet, and China’s citizens began borrowing money to place that bet.’

‘He knew economic growth was slowing, he said Thursday. But he and his friends had decided that China was in a “policy bull market” and that shares would inexorably benefit from China’s economic reforms and President Xi Jinping’s grand plans for regional economic integration and infrastructure development.’

“I thought I could make more if I invested more,” he said, speaking on condition that his full name not be used because of the sensitivity of the subject. He borrowed money and within a month or two invested a further 600,000 yuan in China’s booming market. Then, in the space of a few days, it all went sour.’

“The market started to plunge,” he said. It fell so fast he closed his positions and took huge losses: In one day alone, he says, he lost 200,000 yuan.’

“The moment the position was closed, I really broke down,” he said. “I finally understood why some people jump from buildings after failing in the stock market. Before I used to wonder: How could you jump just because your investment fails? But when I looked at the computer screen and saw the number under my account fall to zero, then I really felt what those people felt.”

‘Many, like Tao, borrowed money in a search for quick and easy profit in recent months.’

“I followed the wind,” acknowledged another young professional working for a state-owned company in eastern Shandong province. His benefits at work had been cut. “Everyone was thinking about how to make money from somewhere else,” he said. “The stock market was booming, so I entered.” Now he can’t afford to close out his investments and take the losses.’

“We all got trapped because of greed,” he said. “I was trying to make money for my family — my wife is expecting a baby at the end of the year. Now I have to wait until the stock market gets better. There is nothing else to do.”

‘While many communities in North Dakota’s oil patch are seeing a slowdown as a result of lower oil prices and fewer drilling rigs, that doesn’t seem to be happening in Watford City. In fact, because McKenzie County and Watford City are the epicenter of the state’s oil activity, city and county leaders predict that 2015 will see a continuation of the rapid building of housing and commercial space that was seen in 2014.’

“A few years ago, when things started opening up with the oil boom, the water really started flowing, so to speak,” said Steven Williams, Watford City Building inspector and Code Enforcement official. “With all that’s going on, there’s a lot of confusion with why so many apartment buildings. But projections say we’re going to have the people here. I try not to ask a lot of questions and just do my job.”

Lakewood, CO(Denver) Housing Prices Fall 13%

http://www.movoto.com/lakewood-co/market-trends/

Aren’t these Chinese stock market worries moot, now that government intervention has finally succeeded to stop the crash?

“According to a new Trulia study, it will take the average Bay Area college grad approximately 29 years to save 20% down for a typically priced home. For those prospective buyers with no degree, forget it. By this study’s calculations, that 20% down savings is impossible for millennials who didn’t earn a college degree. Trulia says, ‘Our study calculates how many years it will take a millennial (young adult aged 25-30) to save a 20% down payment in the 100 largest U.S. metros assuming that home prices and incomes will increase over time – with and without a college degree.’”

I thought folks either paid all cash or bought with very little down. Doesn’t this article discuss a nonexistent category of buyer?

‘Kim Herrick and Opie McNeill are itching for a little old-time welcome wagon-ing. The pair, part of the Walkabout Acres Home Owners Association, really are bubbling with excitement as they prepare to welcome eight new resident families this month to their tiny subdivision in the town of Pierce, about 15 miles north of Greeley.’

‘In a matter of months, that will swell to nearly 70, as this long vacant subdivision’s weeds and empty platted lots are replaced with greenery and bay windows, and homes with double the square footage of the newest Greeley homes.’

‘It’s been a long 15 years since this subdivision off Weld County roads 88 and 33 got started on the southwestern side of town. Only about 16 homes were built in the beginning, and more than 110 lots were slated. Then it sat — for years.

“It left a bad taste in people’s mouths with the subdivision being vacant for so long,” said Mayor Sue Spurgeon-Paris.’

‘Existing residents had a front-row seat to overgrown pastures until recently. “When I turned my first permits in, the lady at the front desk said she had only done one permit in 10 years, and we put in 63 in the last 60 days,” said Jeff Demaske, owner of Journey Homes of Greeley, one of the builders in Walkabout. “One of the guys in the office figured it out, when we build out those 63, it will increase the town population by about 20 percent.”

‘The building frenzy comes at almost the perfect time. Greeley and its surrounding area is getting built out; new lots are too expensive to develop at today’s prices, and exorbitant water rates have made new subdivisions all but a pipe dream. It’s left a huge housing gap in which homes continue to get multiple offers within hours of going on the market as the population continues to swell.’

‘In an area landlocked by an area where water rights have been sold to the city of Thornton, there wasn’t much room for any growth in the town. That’s why town officials hadn’t issued a building permit on a new home in over a decade.’

‘“It’s been sitting out there for years,” said Jamie Baessler, owner of Baessler homes of Greeley, which is building on 24 lots there. “The reality is there is such a shortage of housing that with the demand, people are willing to drive there. We definitely had a couple of Fort Collins buyers, too.”

‘Baessler said it was the last of the distressed properties that came with prices that would make it work. “There’s no way you could develop a new lot for the prices we’re paying for a new lot,” Baessler said of Walkabout.’

‘In areas like Greeley, every house the company builds has “at least $100,00 into the house before we put shovel in ground,” Baessler said. “That’s a hard number for people to understand. We have to work really hard to keep all the costs in control.”

‘Journey Homes has 30 pre-sales and crews are building 30 spec homes, Demaske said. His crews are now putting up 15 homes per week in an assembly line approach — three per day. He plans to be done by Aug. 30.’

‘Many New Yorker’s have found a new summer destination to invest in and it’s along the Connecticut coast. According to a recent report, New Yorkers have a lot of equity to spend. The prices on their homes in Manhattan have sky rocketed, so their using that money to buy their second home.’

‘But those house purchases are not being made in the Hamptons. New Yorkers are driving on Interstate 95 right to Eastern Connecticut. Realtors refer to as “the Golden Triangle.” It’s the area between Madison, Essex and Stonington. ‘

‘Realtors said more New Yorkers are coming to look for vacation homes, east of Madison. In that area, they’re finding homes for a fraction of the price they’d pay in the Hamptons and with about the same drive time. “The time is probably comparable, but value no question. We’re probably one quarter to one fifth of the Hamptons,” realtor Rick Weiner said.’

‘A 5,000 square foot contemporary in the Hamptons with five bedrooms is $26 million. In comparison, a 5,000 square foot contemporary in Essex with five bedrooms and waterviews is nearly $1.3 million. ‘

‘Realtor Janet Peckinpaugh said she has been showing one New York couple properties for months. She added it’s a buyers’ market for New Yorkers. “It’s a commuter area, but the value of the homes are so much better than they are in the Hamptons,” Peckinpaugh said.’

‘Developer Ray DaDario understands the market and he built a $2.5 million summer home. “With an elevator, all the amenities that these folks are looking for and I think over there you’re talking $20-30 million, same property and the same ocean,” DaDario said.’

‘Realtors told Eyewitness News if the pace picks up, don’t be surprised if you see start to see bidding wars on these shoreline properties.’

‘Only 1.10% of the total unsold units in Mumbai are ready for possession, according to a new study. In Thane, 1.33% of the total unsold units are ready for possession, said a report by JLL and CREDAI.’

‘Only 2,600 (or 3.35%) of the total unsold inventory of 77,460 residential units have been completed in Mumbai as well as Thane and Navi Mumbai, according to latest figures.’

‘The inventory overhang in Mumbai (including Thane and Navi Mumbai) is more than 30 months, according to latest figure.’

‘SINGAPORE — The glut in the Executive Condominium (EC) market is set to get worse with new launches adding a wave of supply into a housing segment where take-up has been generally lacklustre.’

‘Analysts, including Messrs Ong Kah Seng and Alex Sun from property research firm RST, have recently said that demand for ECs, with the exception of Lake Life in the Jurong Lake District, had been sluggish at prevailing price levels. They said that the median sale price of about S$800 psf can no longer be supported for projects in locations such as Punggol, Sengkang, Woodlands, Sembawang and Choa Chu Kang, but added that sales will improve significantly if developers cut prices as the sandwiched class are still interested in the hybrid housing type.’

CBS This Morning
Stocks rebound but for many Chinese, all is lost
CBS News
Jul 9, 2015 6:49 AM EDT

BEIJING — Asian stock markets rebounded Thursday, led by gains on China’s Shanghai stock index after the government stepped in to stop a massive slide.

CBS News correspondent Seth Doane says it was a much-needed bit of good news in Beijing, as the government continued to work feverishly to shore-up markets. Still, half of all listed companies on the index have suspended trading — freezing about $3 trillion worth of stock.

Despite the upswing, there were no sighs of relief and no smiles at the Beijing trading hall CBS News visited Thursday, as investors gazed at savings lost, or stuck in government-mandated limbo.

China’s government has banned major shareholders and executives from selling shares, and a $19 billion “market stabilization fund” was set up to buy stocks.

“I would call this a major stock market catastrophe,” Zhang Guoqiang told CBS News. “We have never seen anything like this.”

Zhang, a retired electrician, was among the many small-time investors trying to buy and sell stocks at the trading hall, which resembles a dingy gambling parlor.

More than 80 percent of the 90 million-plus Chinese playing the market are average citizens. Many in the trading hall on Thursday covered their faces with newspapers and shawls when the CBS News camera was switched on. They didn’t want to talk, and the reasons were quite clear: they’ve lost a tremendous amount of their money.

Some told Doane off-camera that they’d lost anywhere from 30 to 70 percent of their savings. One man told us quite simply that his heart was broken.

Many were urged by the government to get into the stock market.

“That is real money,” Peng Lixin, a retired manager of a recycling company, lamented. “Those are real fortunes being lost in there… within one month the situation came to this.”

“A lot of people have been talking about a bubble in the Chinese stock markets for a while and saying it was inevitably going to burst,” Gillian Tett of the “Financial Times,” told CBS News. “But not many people expected the kind of crash we’ve seen in the last couple of weeks.”
…

“Today, the Federal Reserve again is trying to extricate itself from an artificially low interest rate environment. The so-called Fed funds rate has been held near zero for six years.”

Has there ever been another period in American economic history this long when the distinction between investing amd casino gambling was this blurred?

‘There are two schools of thought on this. One says this is because China’s leaders are smart, the country’s economy is basically healthy, and everything will be fine. The other says that these fixes are temporary, that China’s leaders are kicking the can down the road, and that China’s economy is ultimately unsound.’

‘But, long term, I have always suspected that the pessimists were right, that China’s economic model was unsustainable and doomed to collapse into recession and, possibly, the sort of resulting political turmoil the country saw in the late 1980s. One reason I believe this is that I am joined by some of the people in the best position to know: the Chinese leadership.’

“I want to remind those cadres who are staying on the job beyond me: My biggest worry right now is an overheating economy,” Chinese Premier Zhu Rongji said in a January 2003 Cabinet meeting, his last before leaving office.’

“I’ve already worried about this for a year now,” Zhu said in comments released only years later. “I wouldn’t say this publicly, but only bring it up to the top leadership, that overheating is the one thing that preoccupies my mind. Many signs seem to have emerged, and if we’re not vigilant, the economic situation will be difficult to rein in.”

‘The next premier, Wen Jiabao, warned in 2007 that China’s economic model of skyrocketing export-based growth was “unstable, unbalanced, uncoordinated and ultimately unsustainable.”

‘The Chinese government knows it can’t maintain power through censorship, propaganda, and riot police alone. It needs to maintain economic growth to keep Chinese citizens happy, but it also needs to slow down that growth to keep the economy healthy in the long term.’

‘The basic problem at the core of the Chinese economy is that it needs to be dramatically restructured to remain healthy. But Chinese leaders appear either unable or unwilling to make those changes, held back by the unusual nature of China’s authoritarian, one-party political system.’

‘China’s leaders have seen the problem for a while: They’ve been warning one another for years that their economic model was “unsustainable.” But they never fixed it, which is why we’re seeing this week’s latest economic lurch. The reason they never fixed it isn’t that the economy was unready, or that they didn’t know what to do. It’s that they are incapable of doing it.’

‘The very nature of China’s authoritarian model, by basing its power on a sprawling governing elite that is heavily invested in the status quo, might now make it impossible for officials to do the things they need to do to keep the system afloat.’

‘The stakes here are enormous. Since not long after the 1989 Tiananmen massacre, China’s government has premised political stability on delivering consistent economic growth. No one is sure what will happen if Beijing fails on that implicit promise, but Chinese leaders certainly fear the worst. In a democracy, if people feel their government has failed them, they can vote that government out of office. But in an autocracy like China’s, popular discontent can be more dangerous.’

‘There are several ways in which China’s political system makes it very hard for it to confront its economic challenges. One of them is something that I sometimes shorthand as China’s steel problem.’

‘A few years ago, China announced that the country would cut steel production. I asked a journalist who covers Chinese industry if this was good news. After all, China was producing and exporting way too much steel, flooding global markets and dropping prices — not to mention keeping China’s economy on the export-led model it needs to drop. So this must be a good step, right?’

‘He responded that it probably would be if not for the fact that China had been announcing this policy for years, and for years Chinese steel production had been rising. Beijing, he said, could make all the declarations it likes, but there are a lot of high- and mid-level officials, not to mention the powerful state-run industries, that might not see it as in their interest to go along. Often, they don’t, sometimes rewriting policy as it happens.’

‘If what China wants is a healthy, consumer-driven economy that will keep the country prosperous and stable, then one thing it really needs to get there is freer financial institutions. This is a big part of how you direct money to serve domestic consumption, building up things like local businesses. And, indeed, Chinese leader Xi Jinping has talked a lot about making this a priority.’

‘But it turns out that China’s leaders didn’t really mean it. As we learned this week, much as they might have seen the long-term benefits of freer markets, they are unwilling to bear the short-term costs — and they want to keep control of banks to keep diverting money to those entrenched state-run industries and elite interests. The 2011 Eurasia Group report predicted exactly this: “The senior political leadership is not receptive to reforms that would weaken the Chinese Communist Party’s power over the financial system and thus jeopardize its ability to bankroll massive industrial policy spending on powerful constituencies, which constitutes another major 12th FYP priority. Given this discord, Beijing is unlikely to articulate or pursue a convincing plan for remedying the financial sector’s most glaring inefficiencies over the next five years.”

‘That goes a long way to explain why the Chinese government responded to this week’s stock crash with such drastic interventions.’

“The economic hopes invested in Xi [Jinping] and [Premier Li Keqiang] stemmed from their pledge in late 2013 to let market forces play a ‘decisive role’ in allocating resources,” the Economist’s Simon Rabinovitch wrote. “The actions of the past ten days have made abundantly clear that it is still the other way around: the Chinese government wants a decisive role in markets.”

(Chenggong, one of a number of Chinese “ghost towns” of vast housing developments that sit largely empty.)

‘Everyone is focused right now on the enormous bubble in the Chinese stock market — driven in part by regular Chinese investors who followed the terrible logic of bubbles by dumping money into investments that looked like they would grow forever. But maybe a more instructive example is the enormous real estate bubble. In 2011, 13 percent of Chinese GDP came from real estate investment. Urban housing stock constituted 41 percent of Chinese household wealth.’

‘The result of this is that China watchers have been just sort of waiting for China’s real estate to implode, and hoping that it wouldn’t be totally catastrophic when it did. The same goes for the Chinese stock market, which has been in an obvious — and obviously dangerous — bubble for some time. That bubble currently appears to be, to at least some extent, popping.’

‘The fact that the current downturn was entirely foreseeable and yet not prevented speaks to the larger danger looming over China. Its ever-worsening failure to make the necessary economic transition is just as obvious, and the consequences just as foreseeable. China’s leaders are really smart people who can see all of this coming. The fact that they haven’t taken the necessary steps to avert either this little disaster or what could be the potentially much larger disaster of a failed transition tells you something pretty scary: It might just not be in their power.’

‘Does the decline of China’s stock market matter? Yes, but not only — or even primarily — for the reasons being proffered in mainstream media coverage of the bubble’s bursting. Media attention has focused on the risk of systemic financial instability within China stemming from the rapid buildup of margin loans in the weeks and months leading to June 12, when the market peaked.’

‘There is the threat of social unrest as tens of millions of ordinary Chinese watch some or all of their savings disappear overnight. The media has also given attention to the risk of international financial contagion as the Chinese market collapse intersects with political and economic chaos in Greece to drive worldwide investor confidence down.’

‘In Stratfor’s view, the significance of the stock market decline lies elsewhere. First, there is the question of whether and to what extent the collapse of stock prices will affect corporate financing in the Chinese economy. Historically, Chinese companies (state-owned enterprises and well connected private companies, at least) have relied on credit lines from state-controlled banks for virtually all of their financing. Stock markets, while a useful ancillary source of capital and a good diversion for Chinese citizens looking to gamble some portion of their savings, were far too fickle and opaque to be a significant means of raising funds in the real economy.’

‘But during the past year, with the government’s increased focus on market-oriented reforms and its effort to consolidate key industries, the flow of credit from China’s banks has tightened, creating a growing financing gap for many enterprises. The stock market helped fill that gap.’

‘Its decline could exacerbate hundreds of Chinese companies’ already immense difficulties in repaying outstanding debts — debts that are now well in excess of 100 percent of China’s GDP. If the market declines too rapidly and banks or shadow lending markets fail to ramp up credit, China could begin to experience destabilizing corporate debt crises in the months ahead.’

‘In addition, as we wrote earlier this week, a collapsing stock market affects private household consumption. The Chinese government looks to private household consumption not only as the basis for the new economic model China’s leaders want to put in place but also as a means of maintaining stable employment in consumption-related industries while the housing and heavy industrial sectors decline.’

‘As more Chinese citizens lose more money on the market, the impact on spending on nonessential goods will likely become more pronounced, especially considering that stock market participation is highest in cities — the central drivers of household consumption nationwide.’

‘Though there is no reason yet to believe that Chinese President Xi Jinping or any other central leaders have lost the Party’s or the people’s confidence because of the government’s troubles with the stock market, the risk remains. And if such a loss of confidence materializes, it could well change China’s fate.’

‘The great Charles Kindleberger described the pattern of how bubbles form and then burst in his book “Manias, Panics and Crashes”. His model, which was linked to the work of the economist Hyman Minsky, saw the process as having five stages: displacement, boom, over-trading, revulsion and tranquillity. China looks like it is following the model pretty closely, having reached stage four already. The Shanghai Composite rose 130% between September 2014 and June 12 this year and has fallen 31% since then, with another 6% decline today. More than half of all Chinese stocks are now suspended from trading.’

‘One can debate what the “displacement” was in China. Perhaps it was that money moved out of an overhared housing market and into shares; perhaps it was the perception that China is moving up the value chain of production, creating enthusiasm for technology stocks. The doubling in price brought retail investors into the market and there was a huge surge in buying on margin; loans to investors rose 300% in a year. And now we are in the revulsion stage. Investors are having to cash in other investments to pay off their margin loans; commodity prices are falling.’

‘Even with the recent retail interest, the wealth effect on Chinese households should not be the same as the impact of a Wall Street plunge on the US (remember also that the bursting of the dotcom bubble had limited macroeconomic effects). But the fall in commodity prices may point to a broader economic slowdown; Taiwan’s exports were down 14% year-on-year in June (and imports down 16%). Both the South Korean and Taiwanese manufacturing PMIs were around 46, indicating sharp contraction. All told, emerging market PMIs now average below 50.’

A comment:

‘Half of shares suspended from selling, short selling becoming crime, trillion debt local governments start buying at discount some of 65 M empty housing from broke developers, corporate debt world record and state enterprises incl. steel mills sell at minus. It is growth as usual, but if SSE now for a second time in eight years wiped out ordinary people`s life savings, God save the CPC, who stimulated all these bubbles more than the rest of world combined their own.’

‘For the first three weeks after those markets peaked, Chinese stocks listed in the relatively stable US exchanges were largely unaffected…That has changed quickly this week. NetEase, a Chinese gaming company traded in New York, has lost 10% of its value in the past two days. Sina has fallen 15% while its peers in the online-media industry have slipped further: Yoku down 19%, Sohu and Weibo both down 20%, Changyou, another gaming company, is down 25%.’

‘When stock prices collapse, they prompt margin calls that require investors to either put up more money against the loans or sell the stocks, which only accelerates the selloff. But if investors in the US aren’t getting margin calls, why are the shares of Chinese companies traded on the NYSE and Nasdaq suddenly diving?’

‘There are two key reasons. The first is that the declines on the Chinese exchanges have gone from a simple correction to a full-fledged selloff and now seems to be on the verge of something much more perilous: an all-out market panic.’

‘The second thing that changed this week is that it became apparent that the Chinese government, with its formidable ability to control many aspects of its economy, has met its match in the stock market.’

‘China’s efforts to stem the panic selling may end up like the Japanese government’s campaign to shore up stocks in Tokyo when that market collapsed in the early 1990s. Then, government money was spent only to slow an inevitable decline, as well as its recovery.’

‘For Chinese companies, this is bad news because it threatens to stall consumer spending. As China’s growth has slowed, the government has tried to shift the economy away from a reliance on infrastructure and housing toward consumer spending. Many of China’s Internet companies listed in the US rely heavily on consumer engagement with e-commerce, games and ad-supported content.’

‘If the selloff in China does turn into a panic-driven meltdown, it could be bad news for US companies that have come to rely on the growing Chinese market for sales. GM said Tuesday its China auto sales were flat in June, even after it slashed prices 20% on dozens of models. Apple’s fortunes have revived recently on the success of its iPhones in China.’

‘Until now, the rise and fall of the Chinese stock bubble this year has been a fascinating spectacle to many in the US. And it remain that if the government does shore up the market or if the sense of panic dissipates. If not, the turmoil could end up slowing down China’s economy even further, and that could also become a drag for many US companies in this globally interconnected era.’

‘You can only get $50,000 a head out of Mainland China, so a lot of people wire money from Hong Kong. And if they clamp down on the amount of money getting wired out of Hong Kong, things could change.’

Why are so many people trying to get their money out of China, so much so that the government has had to impose capital flight restrictions? Why does the PRC want to keep as many USDs in their possession? I thought the Renminbi was going to replace Uncle Buck as the world’s reserve currency.

flat markets re & stock will cause local re taxes to zoom
they have to pay out wages and DB pensions regardless of returns.

‘Watching an asset bubble burst is a little like watching a tornado: you know lives are being destroyed, yet nature’s awesome power has a strange, terrifying beauty.’

‘But why did investors believe the Chinese stock market was headed for the stratosphere, even as some folks on the sidelines saw all the classic symptoms of a bubble?’

‘Economists realised long ago that if all investors were rational, it would be difficult for speculation to exist. So to get speculation, you typically need the rational investors to be beset by herds of irrational investors.’

‘So there are many theories of why bubbles exist, but there’s no consensus yet. As for China - well, if you bought into that bubble, it’s probably too late by now.’

‘Back in February the Collingwood Group wrote about President Obama’s housing plan. “A new survey finds mortgage and housing industry professional believe President Obama’s recent announcement to reduce the price of FHA annual premiums will have a minimal impact on the size of the home purchase market.’

‘The White House says the President’s plan to reduce fees, which the FHA charges borrowers, is designed to help jump-start the housing market. But 47% of respondents to the Collingwood Mortgage Outlook Report for February say that President Obama’s estimate that 250,000 new mortgage borrowers will be added as a result of a reduction in the FHA annual premium is ‘too high,’ while only 34% said it is ‘on the mark’ and 19% said it is ‘too low.’

“In addition, approximately twenty-five percent of respondents opined that this announcement was more of a political move by the Obama administration than a major change in the market. They said the impact, while positive, will be minimal.”

‘In something more prescient, False Claims Investigations placed first on the survey’s list of the most concerning type of FHA monitoring and associated enforcement actions.”

‘The post-recession housing crisis sent millions of American homes into foreclosure or made the loans underwater. While wealthy neighborhoods have rebounded, many working-class neighborhoods are still stuck in a housing slump where the homes are worth less than what owners paid for them.’

‘As of March, 15 percent of homes worth less than $200,000 are still underwater, a situation in which the borrower owes more on the house than it’s worth. This is compared with only 6 percent of homes over $200,000, according to CoreLogic.’

‘But working-class communities like Trenton, New Jersey; Memphis, Tennessee, and Lithonia, Georgia, a suburb of Atlanta, have bleak prospects and represent a divide in the housing market, according to The Wall Street Journal.’

‘Not only have residents lost homes, but they “don’t have good access to mortgage credit; don’t have wage growth. Everything is going wrong”.

‘Shirley Jones, a Lithonia resident who bought her house in 1996 for $80,000, saw its value reach $325,000 during the housing bubble. Now it is worth just $50,000, she told the Journal. Her neat brick home is down the street from overgrown lots and boarded-up houses that have been abandoned or foreclosed. “It make the community look dead, like a ghetto,” she said.’

‘In addition, more blacks and Latinos had money tied up exclusively in their homes — wealth that disappeared when they lost them, according to the ACLU report, and after the collapse, the Federal Reserve found that the net worth of black families fell 17 more percentage points than the 23 percent it had fallen during the collapse, while worth had started to increase again for white families. Some of this wealth transferred to Wall Street, according to New Republic, as hedge funds and investors snatched up foreclosures in low-income neighborhoods and converted them to rentals.’

‘In the past three weeks, China has experienced a stock market free-fall that’s depleted nest-eggs, crushed dreams of timely retirement, and sent central authorities scrambling to exert control. And Chinese Internet users think they know who’s at fault.’

‘He’s the one who, to hear a web user tell it, “bears all the responsibility for this disaster, for destroying China’s stock market, and for breaking the Chinese economy.” He’s been called “trash” and a “running dog.” Online, many are calling for his resignation, others insist that he be fired out right, or that government authorities investigate him for unspecified crimes.’

‘They insult his mother, call for the arrest of his son for illegal short-selling, and have even urged him to kill himself. In excoriating him, some won’t deign to use his name. Instead they call him Xiao Rectum, an appellation which rhymes with his given name. He is Xiao Gang, China’s chief securities regulator, who, at this moment, appears to be the most reviled man in Chinese cyberspace.’

‘Xiao likely never expected to become a public scapegoat when he assumed the chairmanship of the Chinese Securities and Regulatory Commission in March, 2013 after a stint as chairman of Bank of China, Ltd.’

‘And this is what has made Xiao the man Chinese Internet users love to hate. The CSRC used to be a non-entity on Weibo, a Twitter-like platform in China and the closest the country has to a digital public square. But under Xiao, the CSRC’s Weibo presence has gone from just another sleepy, government-backed account eliciting little fanfare to a favorite gathering place for jilted investors. In recent weeks, each fresh announcement from the beleaguered regulator has been greeted with howls of derision, often in the form of vicious comments directed squarely at Xiao.’

‘A July 8 post provides an apt example. In the wake of a massive sell-off that left the Shanghai Index 5.9 percent lower for the day, the CSRC announced that high-level managers, board members, and major investors in a given company would be banned from selling that company’s shares for six months and that “severe punishment” awaited those who flouted the rules. In an odd bit of wording, the announcement called the latest stock market drop “unreasonable.”

‘The dictat was an obvious effort to halt the price plunge, but it hit social media with a thud. Out of thousands of responses on Weibo, the most popular called the regulator “Xiao Dog” and urged him to quit. Predictably, many commenters asked the CSRC to spell out what rendered a drop “unreasonable” and to distinguish it from a healthy correction. One popular response complained that CSRC’s response had already been “too slow, in the bureaucratic style” and that there had been “seemingly no reforms this year” beyond government efforts to prop up prices. The user lamented, “The people managing the markets don’t understand markets.”

‘Xiao’s role in blowing air into China’s stock bubble traces to remarks first reported on March 11, 2015, by China Central Television, where Xiao picked up on a concept occasionally bandied about in Chinese media in late 2014: that of a “reform bull,” meaning a rising stock market driven by the strength of Chinese economic reforms. Xiao said then he “applauded the concept” because he felt that “this round of rising stock prices reflects an expectation of a bonus from Reform and Opening,” a program of economic liberalization that began in earnest in the early 1990s. In remarks at once bureaucratically hedged and breathlessly — even irresponsibly — optimistic, Xiao said that rising prices “had some inevitability and some reasonableness.” A report days later in Securities Times interpreted Xiao’s remarks as having “agreed to” the term. Xiao reportedly repeated his endorsement of the “reform bull” concept on June 12 in a speech at the Central Party School, the day on which the stock market peaked.’

‘Taken together, statements from state media outlets and leaders like Xiao have not just helped build investor expectations that the government would “save the market” when needed. By negative implication, they have made a large drop in the markets look like a failure in governance, rather than the re-discovery of rational prices. Chinese authorities have obliged this notion, which plays to their own hubris, by rolling out measure upon measure intended to reverse the latest swoon, gambling more and more political capital to chase after already-lost prestige.’

‘Although comments critical of Xiao are legion, so are (uncensored) complaints that veer dangerously close to criticizing other more powerful leaders by name. “Stocks aren’t something for common people to play around with,” concluded one web user in the wake of the July 8 prohibition on sales by big shareholders. People with connections and inside knowledge “buy low and sell high, while [average people] buy high and sell low. It’s not that we’re stupid or naive,” wrote the investor, perhaps referring to the millions of investors in their 20s, or the millions more who have entered the market without the benefit of a high school education. “But we can’t escape the exploitative crush, with expensive goods, expensive housing, poisonous food — I don’t even have the heart to talk about vacation, health insurance, student scholarships. Every time we try to do anything, [the elites] make things difficult at every turn.”

‘The Wall Street Journal reports that Xiao “has worked nearly around the clock” in recent weeks and was recently seen “eating alone in the empty cafeteria at the regulator” one evening. His head of hair, once jet black, now shows grey. Still, he’s unlikely to find much sympathy close to home.’

“Xiao Gang, you may live a long life,” one user wrote on July 8. “But there will be many investors waiting for you in hell.”

‘Fan Xiaolin, an engineer in Changsha in central China, thought he was safe when he deposited his family’s savings of 800,000 yuan ($130,000) in a private finance company he said was recommended by employees of state-owned Bank of China.’

‘The company, part of an informal industry of lenders and investment managers that operates outside China’s state-run banking system, collapsed six months later as economic growth slowed and businesses struggled. Today, Fan said he and about 100 other depositors in Hunan Bofeng Asset Management Ltd. protest several times each week outside state banks and government offices, demanding their money back.’

“The security people at the bank hit us,” said Fan, 50. “The police ask us to go home and wait.”

‘Beijing allowed underground finance to flourish over the past decade to support entrepreneurs who generate jobs and wealth but get little credit from state banks. Communist leaders reaped the benefits of a thriving private sector without tackling the political challenge of giving entrepreneurs more access to an official financial system supports government companies.’

‘Now, as losses rise, Beijing faces political tension and pressure to help investors recover their money.’

‘The industry’s popularity reflects the Chinese public’s urgent search for an alternative to low interest paid by banks, which has driven repeated bouts of boom-and-bust speculation in real estate and other assets. It propelled the flood of money from novice investors that fueled this year’s explosive rise of Chinese stock prices, which peaked in June and have plunged since then.’

“I went to deposit money in the bank and the bank manager recommended this to me,” said an ICBC customer, Sheng Weimin, a 48-year-old engineer for an aviation company. He put 100,000 yuan ($16,000) into Bofeng in January 2014.’

‘Fan, the engineer, said he got similar advice at Bank of China to put money into one-year Bofeng contracts that promised 7 percent annual interest — double the rate at state banks. “There was no talk about risk,” said Fan, who earns 4,000 yuan ($625) per month. “The counter staff at Bank of China said anybody who still uses certificates of deposit is a fool.”

“Many investors don’t realize the risk until something goes wrong,” said Guo Tianyong, director of the Banking Research Center at Central University of Finance and Economics in Beijing.’

You said a mouth full there Guo.

‘The counter staff at Bank of China said anybody who still uses certificates of deposit is a fool’

Oh, the counter staff said that? And you dropped 130k and who’s the fool now?

‘The security people at the bank hit us…The police ask us to go home and wait’

Sounds like you won’t be buying a Miami condo anytime soon Fan. Put some ice on that, BTW.

Centennial, CO Housing Prices Fall 5%; Inventory Skyrockets 95%

http://www.movoto.com/centennial-co/market-trends/

‘Several listed Chinese companies at the heart of Australia’s apartment construction boom have been caught in China’s sharemarket meltdown, raising concerns about the strength of their balance sheets amid warnings they’re carrying too much debt.’

‘Fuxing Huiyu Real Estate, Beijing Capital Development Holdings and one of China’s largest real estate players, China Poly, are all listed on either the Shenzen or Shanghai Stock Exchanges and this week saw their share prices tumble by as much as 26 per cent. Hong Kong-listed giant Greenland, which is building one of Sydney’s tallest residential towers, saw its share price collapse 20 per cent.’

‘This week’s extraordinary volatility in China saw Fuxing Huiyu Real Estate, known as Starryland Australia, slip into a trading halt as its share price sank 21 per cent. It is building 774 apartments near the University of Western Sydney after having paid $58 million for a site on the Parramatta riverfront – or more than double what the previous purchaser paid.’

​’Ausbao, a subsidiary of Beijing Capital Development Holdings, listed on the Shanghai exchange, sank 25.57 per cent this week. The company is planning a $280 million development called the The Quay with 270 apartments in Sydney’s Ultimo. It is also planning another 170 apartments for a property in Sydney it purchased for $55 million – almost double what was paid two years earlier.’

‘S&P China’s Matthew Kong has repeatedly warned that the sector needs to reduce debt. “For some developers, improving sales and reducing debt are critical for their credit health this year due to large obligations from land acquisitions and aggressive increase in borrowings in the past few years,” he said/’

‘Mr Kong said this week’s sharemarket rout may pose “some minor problems” for reducing debt. “Some developers do have difficulty reducing debt as they are still under pressure to expand and the growth in [apartment] prices is smaller.”

‘In Australia, estate agents who are selling dozens of development properties to Chinese groups are showing some apprehension over how Chinese developers’ debt and share prices will affect their demand for property in Australia.’

“The Chinese raise a lot of money and they borrow as much as they can, but sometimes that can hit home and that is what is happening in Shanghai,” McVay Real Estate’s Dan McVay said.’

‘In Melbourne, CBRE’s Mark Wizel has also been selling sites to Chinese buyers. “The unknown factor will be which ‘new’ Chinese groups had planned to come to Australia to invest who may now be shelving plans and waiting to see if stability can be restored within the Chinese landscape,” he said.’

‘Another one of China’s largest real estate players, the Shanghai-listed China Poly, saw its shares lose 9 per cent before recovering. That company is planning a massive apartment development in Epping in Sydney’s northwest. It bought the development site for $110 million last December at the end of an intense bidding war with local developers.’

‘It also bought the NSW Water Board building in Sydney for $100 million among other transactions. Another of the giant Chinese residential developers R&F, whose share price slumped 7 per cent this week and did not recover, has also built a reputation for some massive development site purchases. It paid $46 million for a former TAFE college in south Brisbane last year which could see hundreds of apartments built. The price tag was more than twice the $22 million the seller had bought the site for less than 12 months earlier.’

‘The risk of offshore troubles for Australia’s commercial and residential real estate market has been raised several times by the Reserve Bank of Australia.’

“The risk of a large repricing and associated market dislocation in the commercial property sector has increased,” the RBA said in its March Stability Review. “This could be triggered by several factors, such as … a sharp fall in foreign investor demand, perhaps due to a rise in global interest rates or weaker conditions in foreign investors’ home countries.”

“Property developers in some apartment markets are facing similar risks. Prices for development sites have risen sharply over the past year or so, largely reflecting strong demand from foreign residential developers.”

Castro Valley, CA Housing Prices Fall 7%

http://www.movoto.com/castro-valley-ca/market-trends/

Wow, Ken de Leon has a big mouth for revealing his own client’s worries to a newspaper. I wonder if that might be a breach of contract? I do not know, but I certainly would never use an Agent that was blabbering to the press about my private business. And not, Ken De Leon, is not a nobody. He is, I think, the largest dollar volume broker in Palo Alto.

‘Mainland China’s heavy-handed intervention in its stock market raised plenty of eyebrows in the financial community this week and damages the credibility of its broader efforts to become a more open market. In reaction to the roughly 30 percent plunge in mainland shares from their June highs, the Chinese government stepped in with a slew of policy changes, including a virtual ban on short-selling, serious restrictions on selling by major shareholders and the loosening of margin lending regulations.’

“The last week has put back financial reform for a decade,” said Shaun Rein, founder and managing director of the China Market Research Group. “Rather than ‘the omnipotent Chinese government,’ they created panic. I’m shocked at what they did.”

“We believe that the biggest damage caused by the A-share market’s roller-coaster ride since the middle of last year has been to investors’ faith in the government’s ability to manage asset prices (stock, RMB, debt and even property) reasonably smoothly,” Merrill Lynch Singapore strategist David Hui said in a Thursday note.’

“Also, the ripple effect from the market correction has yet to show up-we expect slower growth, poorer corporate earnings and a higher risk of a financial crisis,” he added.’

http://finance.yahoo.com/news/china-might-given-itself-black-195530172.html#

These guys are being kind. The Chinese government showed their a** and it wasn’t pretty.