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BFCSA: Chinese Housing Bubble - scary economics

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http://ochousingnews.com/blog/deflating-chinese-real-estate-bubble-destabilize-world-economy/

The deflating Chinese real estate bubble could destabilize the world economy

30 June 2014

 

Irvine Renter

The Chinese inflated a real estate bubble more than ten times larger than the United States. Bursting this bubble could destabilize the world economy.
I recently asked what would happen if the Chinese housing bubble burst. The implications for Coastal California’s real estate market is enormous as a crash in Chinese real estate would not just remove a component of local demand, it could turn Chinese buyers into desperate sellers. My sanguine attitude about the ability of lenders to maintain pricing through inventory restriction would change if desperate Chinese sellers began putting must-sell inventory on the market.  The problems in China go beyond our little niche in the real estate world. A deflating housing bubble in China could destabilize their entire financial system and disrupt the world economy.  Some in China want to see the return of market forces and a movement away from central economic planning.

Let housing prices in China be determined by market forces

Yi Xianrong, 2014-06-13

If the government weighs in to reverse the downward trend in real estate prices, the market might not plunge temporarily, but it is sure to lead the market down a more dangerous path, force the property bubble to burst and jeopardize the country’s economy. …

Chinese investors, who have invested their funds in the housing market during the last decade when the market was booming, are eager to lock their gains by cashing in their chips.

The investors’ withdrawal from the market is set to trigger a decline in prices which could hardly be reversed despite the government’s interference. Knowing that market forces will lead to the most effective use of economic resources, the 18th National People’s Congress decided that the government should refrain from interfering with the market, which means that the government should try not to control housing prices.

The business circle that has prompted the decline of real estate prices may be hindered for a moment by the government’s meddling but it will have its own way in the long run.

The reason the Chinese government will likely continue to prop up its real estate market is because the bubble is so large, that allowing prices to find a natural equilibrium will lead to a 90% to 95% reduction in home prices — and that’s not an exaggeration.

We built $500,000 houses for a local population making about $40,000 a year in Riverside County, CA. Prices cut in half there despite aggressive government stimulus before an equilibrium was restored. In China, they built $500,000 houses in areas where the local population lives in shanties on $3,180 a year, so take our bubble and multiply the problem by 12. A 90% reduction in prices is necessary just to bring priced down to where they were as inflated as our bubble was during 2006. Cut that in half again, and a 95% decline in Chinese house prices is a very realistic scenario.

There is more evidence of the 10-fold imbalance. The United States averaged a home vacancy rate of about 1.6% since the mid 1950s. During the housing bubble, due to property speculation, investors began trading empty stucco boxes, and the US home vacancy rate increased to 2.7%, a dangerously high level indicative of a housing bubble.



Source: http://ochousingnews.com/blog/deflating-chinese-real-estate-bubble-destabilize-world-economy/#ixzz3BgqG2W2t

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  • Louie2U
    Louie2U Tuesday, 02 September 2014

    Yes, it is scary economics but so is Australia's economy.
    Our national debt levels are through the roof. This Liberal government tried to con us that Labor was doing such a bad job when they were in power but look at how much further it has increased under their watch. It's increased at an astronomical pace!
    None of the political parties are worth a vote in my humble opinion. They are all sneaky crooks - - at the federal level with Tony Abbott fudging his travel entitlements to rort the public purse and at the state level with Troy Buswell trying to get the public purse to pick up his misdemeanors.
    The resource boom is slowing right down and that is the scary bit. Australia's dollar is a resource dollar. Should our currency collapse or crash on the world stage then we are in a far, far worse place than the politician's or their eCONomists (aka as the Reserve Bank) could ever predict. This is only a matter of time and time rules the markets.

  • Louie2U
    Louie2U Tuesday, 02 September 2014

    Yes, it is scary economics but so is Australia's economy.
    Our national debt levels are through the roof. This Liberal government tried to con us that Labor was doing such a bad job when they were in power but look at how much further it has increased under their watch. It's increased at an astronomical pace!
    None of the political parties are worth a vote in my humble opinion. They are all sneaky crooks - - at the federal level with Tony Abbott fudging his travel entitlements to rort the public purse and at the state level with Troy Buswell trying to get the public purse to pick up his misdemeanors.
    The resource boom is slowing right down and that is the scary bit. Australia's dollar is a resource dollar. Should our currency collapse or crash on the world stage then we are in a far, far worse place than the politician's or their eCONomists (aka as the Reserve Bank) could ever predict. This is only a matter of time and time rules the markets.

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