The housing bubble was a global rather than US event. The bubble outlasted the US experience in several other countries such as Australia and Canada which are experiencing some weakness. However, the one I’ve worried about is in China. Keep your eye on this one.
China’s housing market is set for a hard landing
FORTUNE — The Chinese government’s announcement last week that growth for 2011 slowed only slightly to a still impressive 9.2% was greeted enthusiastically by the world’s stock markets. Investors also remain buoyant on China’s future. They appear to be buying the official line that the gigantic property price bubble is gradually and smoothly deflating, posing little risk to an engine that’s so crucial to the future of global trade.
But the math tells a different story. The housing frenzy has driven prices so high, so fast, that a crash on the scale of the real estate collapse in Japan in the 1990s is a virtual certainty. And China’s already exaggerated official growth rate could take a pounding, all the way to the zone of the unthinkable, into the low single-digits.
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People are saying it will be different for China this time. In the 80′s, Japan was a nation of savers, and poised to be “THE economic power of the free world.” It didn’t happen. The Nikkei crashed, and the Japanese housing market crashed in the 90′s. China will not continue making huge economic gains after 5 years or so. The real estate markets have already been falling in many Chinese cities.
I totally agree the housing bubble will go bust here, and have been living it for years (seeing the ridiculous attitudes that were prevalent in America until a couple of years ago is funny, especially since people always think it is different wherever they are, when it is really more of the same), but to say that China is in the same situation as Japan was in the late 80′s is a little disingenuous, if only because the average salary here is still so low, whereas in Japan they were (and still are) quite high, and the potential for growth exists to a much larger extent in a poorer country than a richer one.
As always, the real question is how much will the government do once the housing market really implodes? That, more than anything else, will determine how much China grows in the coming years. There are still many gains to be made from capital accumulation and hard work if the government doesn’t skim too much off the top.
“They appear to be buying the official line that the gigantic property price bubble is gradually and smoothly deflating”
Man, where have I herd that before?
Try a guy with a giant beard with a reserve-creation fixation.
Here here. In Australia we are experiencing over 8 months of continuous house price declines and it is bound to get much worse, especially once China really busts and local unemployment increases significantly. Our housing bubble is second to China.
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