Chinese Government Determined to Let Housing Prices Fall

China’s massive real estate bust has only just begun to unravel.

In light of that, it’s interesting to see the Chinese leadership take the exact opposite view to the US government’s regarding housing prices:

China’s leaders affirmed they will stick next year with a campaign to bring down property prices even as a “very grim” global outlook threatens growth in the second-largest economy.

The nation will target “basically stable” consumer prices and “unswervingly” implement real-estate curbs, according to a statement after an annual economic planning meeting in Beijing. At the same time, officials will seek “steady and relatively fast growth,” Xinhua News Agency said.

Premier Wen Jiabao’s officials may limit the scale of monetary and fiscal easing to support growth as officials grapple with elevated house prices and local-government debt burdens after record lending in 2009 and 2010. So far, the government has cut banks’ reserve requirements, while leaving interest-rates unchanged at a three-year high.

I don’t think I’ve heard a single US politician in any position of power even hint at the idea that maybe it’s not only desirable but necessary for home prices to come down in order for any meaningful recovery to begin.

The respect for concept prices as a steering and balancing indicator for entrepreneurs and capitalists in an economic system is one of the most basic pillars for understanding the economics of voluntary action, that is free market capitalism.

It’s a bit misleading for the Chinese leadership to say they are going to “bring down” property prices. Property prices are going to come down no matter what they do, the question is just how fast.

It’s possible the the Chinese have learned from the recent attempts of the US and European governments to support or stimulate housing prices and the not so recent ones next door in Japan, and figured if prices are going to come down anyway why not take credit for falling prices and even make it look like it’s them making this happen deliberately?

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Australia’s Coming Housing & Credit Bust

The other day I pointed out that Australia, among other countries, has a big housing bust on her doorsteps.

This week I found some more info on it on Mish’s blog here and here.

Well worth a read, especially if you live in Down Under! :)

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Housing Bubbles Around the World; Severe Corrections Still to Come in Canada, Australia, China, Sweden & Belgium

The Economist has a great interactive chart with home prices around the world.

A comparison of home prices to average income over the past 35 years in different countries:


Another chart gives us information about a few other countries, but data only goes back to 2001 for this comparison:


One thing I noticed in the chart was that Germany and Switzerland are the only countries where absolute home prices AND home prices in relation to average incomes have been declining constantly, at least for as long as data is available:


For Switzerland the available data actually goes back as far as 1991, with prices having constantly declined in relation to average incomes since then. For Germany data goes back to 2004 only. It seems like a bubble never really developed in these countries. Thus Germany and Switzerland may be interesting markets for global property investors at this point.

In Spain, Britain, Ireland, and South Arfica home prices still have a very long way to come down.

Other countries haven’t even yet begun to see the beginning of any meaningful correction in home prices, most notably Canada, Australia, China, Belgium, and Sweden.

People in those countries won’t be immune to the problems associated with building more houses than needed and/or can be afforded. Thus, expect significant corrections to begin soon in cities like Sydney, Melbourne, Vancouver, Toronto, Montreal, Stockholm, Shanghai, Beijing, Brussels, and the like.

The recent plunge in Beijing property prices may be a wake-up call for global property markets.

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Hope You Enjoyed the Housing Recovery … Because It’s History

Some considerations from Richard Suttmeier:

Since the recovery in house prices began last summer, homeowners and real-estate agents have embraced what many believe is a return to normalcy (forever rising prices).

In Wall Street-fueled markets like New York City, properties are once again getting multiple bids, and optimists are chattering about a quick return to old highs.  If the trend continues, friends, neighbors, and real-estate agents will no doubt soon start repeating the adage that helped inflate the housing bubble in the first place: Real-estate is always a great investment.

But the trend won’t continue, says Richard Suttmeier, strategist at

The temporary increase in prices has been driven by government efforts to prop up the housing market, Suttmeier says, and those measures have come to an end. A new wave of foreclosures is hitting the market.  Fannie Mae and Freddie Mac have become black holes into which taxpayers must shovel endless billions just to keep the mortgage engine running.  Most importantly, as measured by the Case-Shiller index, housing prices are still way too high.

In most major house-price indexes, prices have already begun to roll over and head back down. Suttmeier thinks this trend will continue. In fact, he thinks prices could fall another 25% nationwide.

For a good overview of the trends that concern Suttmeier, see fund manager Whitney Tilson’s latest presentation on the housing market.

New Wave of Foreclosures

From  Zillow:

Zillow recently released its first quarter Real Estate Market Reports for the nation and 135 metropolitan areas. The reports show that home values continued to decline nationwide in the first quarter, amid encouraging signs in California. However, growing negative equity and record foreclosures will likely delay a broader recovery.
The full national report, in its new, interactive format, is available at or by emailing [email protected]. Additionally, in most areas data is available at the state, metro, county, city, ZIP and neighborhood level.
Topline National Results:

  • U.S. home values fell 3.8 percent year-over-year, and declined 1 percent quarter-over-quarter, marking the 13th consecutive quarter of year-over-year declines. Home values declined year-over-year in 106 of the 135 metropolitan statistical areas (MSAs) tracked by Zillow.
  • Home values in several large California markets have stabilized significantly, and show tentative signs of reaching a bottom.
  • Negative equity remains high with 23.3 percent of all single family homes with mortgages underwater, up from 21.4 percent in fourth quarter.
  • Foreclosures reached a new peak in March, with more than one out of every thousand homes (0.11 percent) being foreclosed.

The $8,000 first time homebuyer tax credit program has now run out, and so has the $6,500 repeat homebuyer program. Everyone knew that once those run out home prices would resume their natural and required path of price deflation, and foreclosures and underwater homeowners would be back in the news.

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1 in 4 Homeowners Under Water

WSJ reports nearly 1 in 4 homeowners are under water:

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

The argument of oversupply is valid. But then, why would prices hit bottom in 2011, is it not rather likely that it will take many more years, if not decades to work through the overhang, coupled with continuously rising unemployment, government debt, and taxation, private deleveraging, increased savings, and declining consumption demand?

Keep in mind that things look even worse for borrowers in some of the bubble states:

Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American.

These, and more, are all reasons Why There Is More Pain to Come

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