Housing Boom or Bust in China

Recent news reports suggest that China’s economy is experiencing slower growth, around 8% vs 10% in recent past.   Chinese economic policy is shifting towards stimulus despite some comments that inflation is creeping upward. Against this background questions about housing prices are being heard.

Based on anecdotal comments heard “on the ground” during a recent visit rather than hard data, home prices in China are climbing and there is a boom in some major cities.  Buying an apartment in attractive neighborhoods in Beijing can cost around $1000 per square foot, comparable to high end Manhattan condos in New York City.  Renting is a better economic bet than buying by a large margin, suggesting the rent-buy ratio is far from any equilibrium.  Press reports show prices rising in 75 or China’s 100 largest cities.  Combine this with stimulative monetary policy to keep the economy growing rapidly and one would seem to have a recipe for a bubble that could burst.  One difference between China and the US is the government’s attitude:  China’s central government is concerned with maintaining domestic stability.   People expect that any sign of the housing bubble bursting and leaving lots of people deeply in debt with underwater mortgages would be met with government programs to limit the damage.  Not a bailout, but probably more mortgage assistance than seen in the US.  Whether Chinese policy would be more successful than the US response in containing the damage remains to be seen.

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  1. By Monday Morning Links | Iacono Research on August 6, 2012 at 8:39 am

    [...] the Economic Pain – WSJ America has 40 million McMansions that no one wants – grist Housing Boom or Bust in China – S&P Housing Views Soft-spoken Yellen wields outsize influence as Fed’s No. 2 [...]

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