Sunday, January 08, 2006

A Home Boom Busts

Which housing market do you think these statements are referring to?
"a doubling of prices in the previous three years"

"a run-up fueled by massive speculation"

"at least 30% to 40% of homes sold were bought by speculators"

"Ordinary people had no option but to follow the trend; worrying that prices would be even more unaffordable tomorrow, many of them borrowed from relatives and banks to buy as soon as possible."

People sleeping in lines over night for the chance to buy a property.

"[so-and-so] believed she was raking in hundreds of dollars a day for doing nothing, as property prices in the city kept soaring."
Sounds familiar, right? Is it Florida? Boston? San Diego, San Francisco? Wrong, wrong, wrong, and wrong. It's Shanghai, China (and here). Their housing bubble is not described as being in "a soft landing", a "hiss/leak" or whatever, but rather as "popping".

Now, to be fair and unlike other eager-beaver bubble bloggers who are reporting on this article, I am not going to draw any strict comparisons between China's housing bubble and ours. Why? Because of the fact that the Chinese government seems to have deliberately tried to pop their bubble:
Banks were ordered to raise their best rate on home loans to 5.5% from 5%. Home buyers were required to make down payments of at least 30%, up from 20%. A 5.5% capital gains tax on home sellers' profits was imposed. Beijing also levied a 5% tax on the sale price of homes sold before two years of ownership.
We have yet to see any concerted effort (of comparable magnitude to that of China's) on the part of our elected and appointed officials to reign in our housing bubbles as it seems as if our leaders want our bubbles to go on for as long as possible and then collapse of their own weight and then, after the damage has been done, get credit for "fixing" the problems. That way our leaders don't get blamed for having caused the pain of the popping even though intervening early would reduce the suffering the American public would experience as compared to waiting for the whole thing to blow on its own.

What interests me about this article is what is happening to the people in Shanghai as a result of the implosion of their bubble; it's only just begun for them and I think it is something we will eventually have to "look forward" to ourselves.
But it's not just speculators who have bailed out of the market. A lot of potential Shanghai buyers have been scared off by numerous reports of sinking home prices and desperate action by some owners.

A Taiwanese man had jumped from the 33rd floor of an apartment tower about 15 miles northeast of downtown. Many people suspect that he killed himself because he was drowning in debt after his home investments went sour.

"Even a 1% drop in prices is a lot of money for us."

People losing their life savings.

The financial sector will be crippled by the real estate fallout

Regret with having got caught up in the housing frenzy


Anonymous Anonymous said...

People are people.

We are the same everywhere.

And while Joe Average can be right in the middle of an asset move, he tends to overstay at the extremes.

Nice blog, hope it helps.

Jan 8, 2006, 10:05:00 AM  
Blogger Marinite said...

People are people.

We are the same everywhere.

Exactly. Which is why we can learn something from others' experiences. But there are differences between ours and their RE markets. But given how distorted the RE markets are I think those differences are much less important.

Jan 8, 2006, 8:20:00 PM  

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