Another Housing Bubble in US? (Under the Cover of China’s Housing Bubble)

http://www.nbcnews.com/business/housing-sales-drop-worrisome-signs-west-2D11624125

Apparently, the lure of money makes people forget lessons of the past.

So when recently the housing prices started to rise again in the Western regions of US, People are starting to dump houses, hoping to cash in on the higher prices.  (either that, or just trying to get themselves out of the market with little loss as possible).

That has led to a small glut of supplies in some places.  Which invariably lead to 2 possibilities:  (1) Prices will come down again, quickly, because there aren’t that many buyers, (2) People will start to speculate (flip) housing prices, with banks giving easy credits.

Now, some may say the possibility (2) is not likely, because banks have learned their lesson, and the current government policies heavily regulate loan approvals to prevent subprime loans.

However, “subprime” is coming back.  http://www.marketplace.org/topics/economy/after-lehman/5-years-after-lehman-subprime-mortgages-return

But they call it different thing now, “non-prime mortgages”, for people with bad credit.  Supposedly with more strict rules, like verified income.

That’s like saying, “subprime with less risk, according to some criteria”.

Of course, it is nice that people should qualified for a home.  It’s the American dream (and pretty much dream of all people to own homes).

But the problem with “subprime” wasn’t necessarily the “income”, it was the “speculation”, the risky behaviors of some folks, that drove up the prices into the “bubble”.  I.e. PRECISELY the kind of risks associated with “bad credit rating”, which the non-prime mortgages still allow.  So, people who speculated in the last bubble, ended up with bad credit, are now again qualified.

The problem is, with “non-prime mortgage”, people will likely use the easy credit with the high interest to speculate, given the temptation to do so.

(A real solution is perhaps attach risk to the specific real estate.  If the area is already overpriced, loans should be selectively denied.  But unfortunately, when there is a demand for speculation, there will be bank loan sharks willing to feed the beast.)

*While all this was already going on, the story received very little coverage in the Western media, which was actually quite busy harping on the Chinese “housing bubble”, which they have little understanding of.

Propaganda and cover up much?

Which gets down the fundamental problem of some people who are too busy looking FOR other nations’ problems:  It’s really just their escape, to ignore their own serious problems.  It doesn’t have to be a government trying to divert attention.  It is often just collective self-deception in the mentality and assumption that one’s own affairs are perfectly OK.

3 thoughts on “Another Housing Bubble in US? (Under the Cover of China’s Housing Bubble)

  1. If people in the U.S. stopped “dreaming” and started thinking about the consequences of wanting something they cannot afford, there would not be a repeat of 2008. It seems U.S. real estate are desperate and are feeding off from desperate homeowners. Giving bad news about China is nothing new, just a boring, pathetic and desperate attempt for the U.S. to squeal insanely “god bless AmeWRECKa”.

  2. The Chinese housing bubble if there is one is completely different nature. The down payment requirement in China is around 40%, and it’s not unusual for buyers to pay 100%. The housing price in China is still rising slightly although government is trying to cap it. The main bubble is on the developers in danger of default if they overbuild in area where demand is lacking which is anecdotal of empty cities cited by West but doubtful given the government is still encouraging urbanization. Usually developer already sold substantial percentages of apartments before it break ground. While the housing bubble in West is more related to sub-prime lending and financial sleight of hand with packaging of mortgages.

  3. @N.M.Cheung

    Yes, they completely different in nature.

    “Bubbles” are built up during speculation, generated by rounds and rounds of loose risky credits made available through the subprime/nonprime loans.

    In China, such speculations are largely confined to the initial real estate developers. (i.e. there is little repetitive speculation on the same properties).

    Result: Chinese rarely buy property that they can’t afford, (on top of that, they also have very high saving rate for just such expenses). Thus, we won’t see the kind of run away overpricing of property in China and then sudden collapse.

    Yes, there are expensive properties in Chinese cities. But that’s just generally caused by high demand for housing in the inner cities.

    Chinese banks don’t flip worthless loans by lending recklessly and then resell the loans to each other (or sell them as mutual funds and derivatives).

    I fear, we will soon see the rise of derivatives in US packed by worthless “nonprime mortgages”.

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