Friday, July 22, 2005

More On Revaluation of Yuan

The Contra Costa Times has an article explaining why China's decision to let the yuan float against a basket of currencies spells trouble for the Bay Area's bubbly real estate market. Some choice quotes:
"China's decision to revalue its currency caused interest rates to jump Thursday and cast a shadow over a super-heated housing market that has been bolstered by relatively affordable loans."

"Talk of currency fluctuations and the value of the dollar vs. the yuan might cause a person's eyes to glaze over. Yet the move by the emerging Asian economic power, a response to pressure from the White House and Congress, could have a significant impact on personal pocketbooks and property portfolios."

"Why? To keep the yuan's exchange rate against the dollar fixed, China has had to scoop up huge amounts of dollars. And China has invested much of that money in U.S. treasury bonds. That, in turn, has helped keep U.S. interest rates quite low."

"The market's reaction to Thursday's decision was immediate. The yield on the 10-year Treasury note, a benchmark for mortgages, jumped from 4.16 percent to 4.28 percent. That's the highest interest rate for that note since early May."

""This is another nail in the coffin of the housing bubble," said Christopher Thornberg, an economist with the UCLA Anderson Forecast. "Inflated prices are the biggest factor in the housing market. But this is going to hit mortgage rates, which are also a factor.""

"The outlook for the housing market -- a major engine for the Bay Area economy and especially important in the fast-growing East Bay and Solano County -- is ominous, according to John Rutledge, chairman of Rutledge Capital, a Connecticut-based investment firm. Recent buyers could be especially vulnerable, he warned."

""Because China has been forced to revalue, that has shut off the U.S. housing boom," Rutledge said. "I would not want to be the last person to buy a house when this happens. This is very bad for the U.S. housing market.""

"Now, a lot of products imported from China could become more expensive. And that again would hit consumers in the wallet."

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