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China's housing market in free fall? What's that mean for the US? Spritzler speaks!

Remember that little recession we had in 2008, where the stock market fell by over 50% and one-quarter of Americans had a house worth less than their mortgage? Yeah, that one!

Well, the housing sector in the US accounted for about 12% of our GDP then (15% if you include ancillary businesses that depend on housing). China? Not 12%, 30%! BAM!

When the US went into a tailspin, the stock markets and economies of all industrial nations got whacked as well. China's housing dropped 21% in value last year. Things aren't improving. BTW the reason your gas costs less is because China's economy is contracting, and their demand for oil has plummeted, sending crude oil prices down. That's not good for Putin.

To which I say, don't worry, be happy!

China’s Housing Market Is Still on Life Support

Without firmer, broader commitment from Beijing, China’s housing woes will continue to spread

Sales of new residential properties in China dropped 21% year over year last month.

By Jacky Wong, WSJ

Updated Sept. 16, 2022 7:55 am ET

September and October are usually the peak season for China’s property sales. But things are looking different this year—and not in a good way. Until Beijing works up the gumption to intervene more decisively to restore confidence, the slow drift downward of the market—and the broader economy—seems likely to continue.

Chinese housing prices continued to fall last month. New-home prices declined 0.3% in August from the previous month, extending the slide to a whole year, official data released Friday showed. That brought the year-over-year drop to 2.1%. Smaller cities are faring particularly badly: Prices in third-tier cities fell 3.7% from a year earlier.

Sales of new residential properties dropped 21% year over year, a smaller decline than in July, but that was partly due to a low base last August. Property sales of 22 developers tracked by Morgan Stanley fell 29% in aggregate in August.

Local governments have been rolling out measure after measure to boost the market. But such policies mostly just represent an easing of previous restrictions, making it simpler for buyers to make purchases. For example, many cities have begun allowing parents to help their children buy an apartment using their housing provident funds, a kind of compulsory saving program in China.

But such policies can only help so much when overall confidence in property developers’ finances remains fragile. The collapse of a spate of developers has raised concerns about whether they would be able deliver their presold apartments at all—and whether stronger developers’ uncompleted projects could be at risk too.

Falling prices add another reason for potential buyers to stay on the sidelines. And China’s zero-Covid policy makes matters worse by dragging on income growth and employment.

Restoring confidence requires tackling the issue of uncompleted apartments. And while the central government has so far declined to decisively intervene, local governments—whose finances have been damaged by plunging land sales—probably aren’t up to the task.

S&P Global Ratings estimates it would take 700 billion yuan to 800 billion yuan, the equivalent of $100 billion to $114 billion, to make sure distressed developers can finish the two million homes they have already presold. If the government lets the crisis fester—with more developers failing and unable to finish their projects—that amount could more than double.

The government has started providing guarantees to bonds issued by some healthier developers in the past month. That has helped shore up their bond and stock prices. But such a policy can only be described as a rear-guard action: inoculating against further contagion rather than rebuilding confidence in the whole industry.

Without a firmer, broader commitment from Beijing, China’s housing woes will continue to spread. Eventually, radical surgery will probably still be needed to save the patient.

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