Is there a recession down the corner? Should the dips be bought? The master of business cycles, Lakshman Achuthan (@businesscycle ) of Economic Cycle Research Institute chats with @latha_venkatesh (1/2) pic.twitter.com/WSgmBdULdU
— CNBC-TV18 (@CNBCTV18News) August 30, 2022
Falling property prices and a growing cash crunch are upping financial pressures globally. Chinese real estate development and its capital flow to other countries like Canada helped inflate demand and prices from 2009 to 2021. Reverse effects are being felt worldwide too. See more on the implications for developers, lenders and investors in WSJ: China’s property market has slid into a severe depression, the real-estate giant says. This video report offers further insight:
As China’s economy stalls, protests have broken out over frozen bank accounts and mortgage payments for unfinished homes. WSJ explains the reasons behind the simmering discontent and how Beijing authorities are trying to keep a lid on it.
Here is a direct video link.
There is also a growing trend of Chinese borrowers repaying mortgages early amid higher interest rates and falling property prices to reduce negative carry and free properties up for resale. Contracting credit is hard on lender profits; Chinese bank shares are down about 30% so far. See Chinese borrowers pile pressure on banks with early mortgage payments:
Bill Chen, a self-employed consultant in Beijing, took out a Rmb1.25mn, 25-year mortgage in 2020 to buy a second apartment in the Chinese capital. But rental income of Rmb6,500 a month does not cover his monthly mortgage payments of Rmb7,826, three-quarters of which is interest, and with no attractive alternative investment options, Chen decided to repay the mortgage this summer.
“I prefer predictable returns and saving on the interest on my home loans seems to be the only predictable returns [I can get] for now,” he said. Falling property prices also encouraged Chen to pay off the mortgage in order to be ready to sell the apartment if its value declines further. Chinese owners usually have to clear any mortgage before starting a transfer of property ownership.
This video presentation offers an illuminating comparison of US housing market risks today versus the last bust in 2008.
Many economists are talking about a potential 2022 housing crash, but very few are comparing this housing market to the 2008 crisis. In the video we will look leading indicators, debt levels, and monetary policy from both periods to determine the most probable path forward for the 2022 housing market. Here is a direct video link.
This time, a magnifying feature for the global downturn is that simultaneous property bubbles are also bursting in the world’s second-largest economy China, as well as places like Canada, Australia, New Zealand, the UK and Sweden.
Over the past 15 years, Chinese real estate development has been the world’s most impactful economic driver and commodity consumer. Now, sales and prices have fallen for 11 consecutive months in the 70 largest Chinese cities, and nine of the ten largest property developers have defaulted on payments to lenders. It is estimated that Chinese banks are some 3.5x more leveraged than the US banking system was in 2008.
