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> Why are the prices so high? Prices skyrocketed due to housing as an investment. It's a very peculiar thing but basically it was a self-fulfilling prophecy. H

> Why are the prices so high? Prices skyrocketed due to housing as an investment. It's a very peculiar thing but basically it was a self-fulfilling prophecy. Houses go from $100k to $120k in two years? Alright well let's buy a house as an investment on a shitty salary, it's free money. Until everyone said that, and the rate of prices going up kept increasing, and kept reinforcing the investment opportunity myth. Basic bubble, basically. And it was of course fueled by insane growth in wages. I mean just look at these graphs for wage growth: http://online.wsj.com/media/WAGES.jpg http://online.wsj.com/media/WAGES.jpg http://ase.tufts.edu/gdae/images/Vernengo_AvgrealwagesChina.png http://ase.tufts.edu/gdae/images/Vernengo_AvgrealwagesChina.... It's insane. You basically had 20-30 years of 15% growth annually. 20 years of that is 16x. 30 years is 66x. It wasn't quite 15%, but probably 10-11% on average the past 30 years. That means housing prices will naturally rise, and when they naturally rise for decades and there's seemingly free money if you invest in a home, it's easy for an investment bubble to arise that even outpaces wage growth. Then add to that two more elements: gigantic internal migration (China has internal passports, it's very interesting. But it doesn't stop huge urbanisation). How big? Well 25 years ago urbanisation was about 25%. Today it's about 55%. Then add to that population growth of 200 million extra people. What do you get? No joke, half a billion extra people living in cities compared to just 25 years ago, in China. That's insane. That's literally the entirety of North America (more than 20 countries), or all of South America times 1.5, or all of Europe and then some, living in cities, many of them existing ones. And that's how you get homes worth $200 - 400k, for Chinese who have a $7k GDP per capita, and middle class wages deviating from that only slightly higher. Partially it's alright. China will still urbanise, it will have to demolish and rebuild many buildings, and its population will add another 100m people. But on the other hand, it's an extremely worrying asset bubble we don't talk about enough. People forget that China was, though far from alone, in some ways quite instrumental in dampening the effects of the economic crisis. One can worry what happens if an economic crisis arises from China itself, as asset prices in some areas are just absolutely batshit insane and will have to be written off at some point, which collapses the house of cards. (selling overpriced property for nothing, which already happens but is inevitable on a larger scale, reduces all property values, who are overpriced too, escalating a major selloff that'll leave tons of debt in its wake. Familiar story of course.)

tim333 11y ago
>homes worth $200 - 400k, for Chinese who have a $7k GDP If wages keep growing they could catch up to the house prices somewhat.
- IkmoIkmo 11y ago
  Sure, assuming housing prices don't continue to grow. But lending rates in China are about 6% or so, just the interest alone on a $200k mortgage is absolutely insane for an ordinary Chinese person. It's almost twice the annual gdp per capita. Meanwhile here in the Netherlands a typical house will set you back $250k but the per capita gdp is $50k. Of course the Netherlands is wealthier, but you'd think its housing prices would reflect that and show a similar income/housing ratio, roughly speaking, but it's just completely different. Housing is in a huge bubble and there's a crazy gap between wages and housing in China. If wages continue to grow while houses don't, sure... but that'd also mean people will sell their homes because they're no good as an investment anymore, which pops the bubble, and that'll create a ton of debt as people are stuck with $200k mortgages on a home worth $100k or less, that's structurally so unsound it'll be demolished within 20-30 years. My outlook is pretty pessimistic tbh. Although it does seem to be a problem confined to particular areas, that must be said.
  - tim333 11y ago
    I'm mildly optimistic. I'm recently back from Saigon which went through a similar thing - new builds were stupid expensive against GDP per capita and peaked around 2008 or so. Then: "house prices can drop as quickly as they rise. Vietnam's did with a vengeance in late 2010 as the economy slipped. Prices are down by 50 per cent in some parts of the country, and no one is predicting a rebound. Banks are weighed down with bad debt, much of it secured against property..." Economic growth dropped from about 7% nationally to about 5% and maybe 0% in Saigon but is now back to growing 7%. Property in the overpriced new builds is still down 50% or so but showing signs of recovery - life goes on indeed it's kind of booming just now after being pretty quite a couple of years back. I imagine China will be similar.

tim333 11y ago

>homes worth $200 - 400k, for Chinese who have a $7k GDP If wages keep growing they could catch up to the house prices somewhat.

IkmoIkmo 11y ago
Sure, assuming housing prices don't continue to grow. But lending rates in China are about 6% or so, just the interest alone on a $200k mortgage is absolutely insane for an ordinary Chinese person. It's almost twice the annual gdp per capita. Meanwhile here in the Netherlands a typical house will set you back $250k but the per capita gdp is $50k. Of course the Netherlands is wealthier, but you'd think its housing prices would reflect that and show a similar income/housing ratio, roughly speaking, but it's just completely different. Housing is in a huge bubble and there's a crazy gap between wages and housing in China. If wages continue to grow while houses don't, sure... but that'd also mean people will sell their homes because they're no good as an investment anymore, which pops the bubble, and that'll create a ton of debt as people are stuck with $200k mortgages on a home worth $100k or less, that's structurally so unsound it'll be demolished within 20-30 years. My outlook is pretty pessimistic tbh. Although it does seem to be a problem confined to particular areas, that must be said.
- tim333 11y ago
  I'm mildly optimistic. I'm recently back from Saigon which went through a similar thing - new builds were stupid expensive against GDP per capita and peaked around 2008 or so. Then: "house prices can drop as quickly as they rise. Vietnam's did with a vengeance in late 2010 as the economy slipped. Prices are down by 50 per cent in some parts of the country, and no one is predicting a rebound. Banks are weighed down with bad debt, much of it secured against property..." Economic growth dropped from about 7% nationally to about 5% and maybe 0% in Saigon but is now back to growing 7%. Property in the overpriced new builds is still down 50% or so but showing signs of recovery - life goes on indeed it's kind of booming just now after being pretty quite a couple of years back. I imagine China will be similar.