Developers in China Punished for Land "Hoarding"

China can't use policy to impact the "hoarding" of empty finished, perfectly livable apartments, so they have resorted to encouraging developers to build more units for speculators to leave empty.

China orders land hoarding freeze as prices rise

The country's land and resources ministry on Thursday published a list of 26 cases of land left undeveloped and the names of the property developers involved, with strict orders for authorities to punish the offenders.

Real estate developers who have left land vacant for one to two years should be fined, while property left undeveloped for more than two years should be returned to the government, the statement said.

Authorities intend to build 10 million units of social housing in 2011, after completing 3.7 of the intended 5.8 million in 2010. China doesn't fear a tulip bubble, they fear unrest. One assumes they have controls in place to keep these apartments out of the hands of speculators or they are wasting their time. Xie thinks they need 20 million units to satisfy demand

Teranet Canadian House Price Updated for October 2010

Teranet housepriceindex.ca

Vancouver was flat September to October, but nationally prices were down 0.45%

Toronto (the biggest weight in the index at 42%) was down just shy of 1% September to October and down 2.46% from the peak in August 2010.

Vancouver's raw data peak was in June 2010 (down 0.96% from then), the three month smoothed peak was in August 2010.

Of the six cities in the index, Calgary has recorded the largest drop of 3.7% from the raw data peak in July 2010.

A Post-Holiday Surge in Australia Bubble Articles

From utter silence before Christmas to a chorus of articles. Given how slow data are coming out of Australia, I can't help but suspect that the media, getting early whiffs of trouble, are not in CYA, oh-we-saw-it-all-along-despite-our-previous-endless-cheerleading mode.

Australian house price inflation leads world
Year to year price growth was 9.4%, down from earlier in the year. Year to year March 31 growth was 15.9%.

Australians lap up overpriced real estate at auctions

The emotionally charged auction process, however, has helped fuel Australia’s runaway housing sector, where gravity-defying prices have some analysts warning of an impending implosion that could drag down the country’s long-running economic prosperity.

Down Under housing market booms, Canada simmers: Scotiabank

Canada, by contrast, saw higher housing prices, but only about half of Australia’s, or around 6 per cent. And now Scotiabank is ambivalent about the prospects for the coming year.

China: This Time No One Is Listening

In the past, technocrats have kept ahead of speculative frenzies and controlled growth. Not this time.

China's Real-Estate Frenzy

Understanding government policy has long been the key to making money in China's property and stock markets.

The main tools to regulate growth were administrative: government orders to banks to stop lending and to companies and local governments to halt projects. And that's what Beijing is still trying, increasing banks' reserve ratios and cutting lending quotas.

But this time nobody is listening. Local governments and banks have set up off-balance sheet vehicles to conceal loans and keep the spending boom going. Fitch Ratings estimates that not only did banks exceed the central bank's 7.5 trillion yuan ($1.1 trillion) cap on lending for this year, they made an additional three trillion yuan of these shadow loans.

At the peak of the bubble, US houses cost 6.4x average earnings, Beijing currently is at 22x.

Foreign Investors That Funded Australia Housing Boom Growing Cautious

Foreign lenders get the property jitters

Official figures show our banks now owe overseas investors a record $352.7 billion, equivalent to 27 per cent of the country's entire economic output.

If the global economy recovers strongly that could push interest rates up a lot, and that's a real risk for Australia's because rates are already high and house prices are becoming an issue," said Trevor Greetham, asset allocation director at Fidelity Investments in the UK, which has $3.4 trillion under management.

Analysts said if Mr Greetham and others like him withdraw funding, then our banking system will be plunged into a catastrophic credit crunch. Mortgages will be rationed, minimum deposit sizes will be forced up and property prices are likely to collapse.

Gerard Fitzpatrick, global fixed income portfolio manager for Russell Investments, said he was increasingly cautious about lending to Australian banks.

Speaking from London last week, he cited the recent catastrophe in Ireland, where the house price bubble effectively broke the banks.

Hot Money In, Smart Money Out

China raised interest rates 25 basis points last night. Like tilting a giant bathtub, hot money will naturally roll in. But the smart money has been trying to get out of China.

Outlook 2011 and the Next Decade: China: Is the Smart Money Right

The country has major infrastructure issues, troubling population dynamics, poorly aligned employment outcomes, inflation problems, a real estate bubble, an opaque and potentially insolvent banking system (had mark-to-market accounting been applied), geo-political problems with North Korea and Taiwan, and an underperforming stock market in 2010 (see stock comparison chart).

So, multiply the bad business project factor by ten and you get an understanding of the magnitude of bad loans on the books of Chinese banks. The problem is being further exacerbated by the practice similar to Spain`s of banks making additional loans to the businesses just so that they can then turnaround and pay back the interest owed on the original loans.

Victor Shih, a Northwestern University professor estimates that Chinese local governments borrowed some 11.4 trillion renminbi at the end of 2009, and that local government financing loans to be roughly one-third of China's 2009 GDP. . . .

Signs of Trouble Downunder

Mortgage applications down. Retail sales down.

High home ownership rates coupled with rising cost of ownership are taking a toll on the rest of the economy.

Retailers cry poor as sales drop sharply

Harvey Norman boss Gerry Harvey said there would be "blood on the streets" in the retail sector because business is so bad, the worst since the recession of the early 1990s.

"It's a crisis, the worst in 20 years," he said.

I'm still thinking that the real downleg of the housing crash will come after the government panics and drops rates.

Strange Summer Selling Season

According to the ABS data, in round numbers, there were only 48,000 loans approved in September 2010 compared to 65,000 for the same month in 2009.

5 Reasons China Will Crash in 2011

5 Reasons China Will Crash in 2011

1. The Great Chinese Credit Bubble
Sure the banks will bail everyone out, but if Mark Hart is right, they Chinese debt to GDP is between 107 and 200%. They may not have as much on hand to cover the massive bad bets.

2. The Great Chinese Labor Force
Over the next five years China will add labor force members equal to all those in the U.S. and Europe, a big deflationary force. (This assumes they can keep the giant yuan game going, however . . .)

3. The Great Chinese Commodity Gobbler
Too much of a good thing driving imports up while the Chinese export capacity is "staggeringly" over capacity.

4. The Great Chinese Currency Reserve
The Chinese have trapped themselves between inflation or devaluing their foreign denominated bonds by letting the yuan appreciate.

5. The Great Chinese Nation-State
This prediction seems a bit weak. Other nations are still quite timid about criticizing China let alone actually taking significant action, trade or otherwise.

Chinese Developer Issuing Yuan Denominated $ Bonds

Aside from the creative nature of this bond issue, the more interesting points are:

Their apparent confidence with moving the money raised during the bond sale back into mainland China.

The currency risk has been transferred entirely to the investor, the rates were low for bonds of this type, and the bond issue was a roaring success ($450 US). Who was it said be fearful when other are bold? For some reason that leaps to mind here.

A No-Yuan Approach to Yuan-Bond Sales

New China Bank Rules Affect Capital

The government is making more moves to protect from expected losses in development loans.

This time banks are expected to (or already have instituted, it actually isn't clear from the article) raise the assigned risk weightings from 50% to 100% for loans covered by cash flows and to 300% for those not.

China’s Risk-Weighting Rule May Cut Banks’ Capital

The government is trying to limit risks stemming from last year’s surge in loans to local-government finance vehicles for roads, bridges and railroads. Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.2 trillion) credit they’ve extended, a person with knowledge of data collected by the industry regulator said in July.

Australian Luxury Home Prices Falling

Total listings in Australia over $1 million AUS are 40% higher than normal for this time of year.

Prices of the most expensive 10% of houses in Sydney fell 7.5%, in Melbourne 10.8% in the six months ending September. (Boy data is slow to emerge from Australia...)

Australian Luxury Home Prices Fall as Rates, Dollar Dent Demand

Liquidity Squeeze in Chinese Markets

Key China mkt rate spikes on liquidity squeeze

SHANGHAI, Dec 21 (Reuters) - China's benchmark money market rate leapt 54 basis points to a fresh more than two-year high early on Tuesday, as traders reported an acute shortage of funds after a slew of official tightening steps.

"No money is what I can say,"" a trader said, describing the money market situation, adding that some major banks who typically are lenders, were also trying to borrow on Tuesday.

"Everybody is busy borrowing," said a trader. "Who has extra money to buy PBOC bills? In addition, the yields are so low." Over the past several weeks, the PBOC has found it increasingly difficult to attract demand for its bills, as the yields offered at auction have lagged behind the cost of money in the secondary market.

Nevertheless, it persists on keeping auction yields on its bills low, apparently to cushion widespread expectations of another imminent rate hike, although such hikes are still seen inevitable in the long term due to high consumer inflation.

Australia Median House Price declined in 2010 Q3

Old info, but just released on the 15th.

Median housing prices decline

“Both house and other dwelling median prices declined by 0.5% to $533,447 and $424,499 respectively”, said REIA President, Mr David Airey.

With the exception of Sydney, Melbourne and Hobart, all Australian capital cities recorded median house price decreases over the quarter. Sydney, Melbourne and Darwin recorded the highest median house prices while the lowest were recorded in Hobart, Adelaide and Brisbane.

Australia Boom Towns Have Highest Mortgage Delinquencies

Australian Mortgage Delinquencies On The Rise In Boom Towns

In the last few months, however, home prices have flatlined, leaving affordability stretched after a string of interest rate hikes by the country's central bank. As such, 30-day delinquencies on mortgages are up in the past year, especially in the more speculative booming areas.

Fitch said 30-day deficiencies in south west Australia rose to 2.82% in the third quarter, outpacing every other region in the country.

A rise from 1.9% a year ago. So not exactly panic time, but as a trend, something to note.

"One of the biggest furphies in 2009 was the claim that Australia had a 'bubble'"

THE WEEK AHEAD: Where will interest rates move in 2011? -- Craig James
The title belies the lede on this one. And I haven't done a "noted" in too long. Too much to note recently to pick out what deserves to be pointed and laughed at later.

One of the biggest furphies in 2009 was the claim that Australia had a 'bubble' in the housing market. It didn't and still doesn't . . .

He trots out the standard, the population is growing faster than than new housing, conveniently cutting off his data at 2008. Also, he ignores what Americans are very familiar with now, and that is how many households get destroyed (compressed, in noneconomic terms) when housing becomes too expensive. What you care about is net household creation, not immigration. Funny enough, those aren't exactly the same thing, especially if interest rates continue to rise and your young people and older people all move in with the middle-aged people. Easy enough given the oversized houses so conveniently provided by a steroid-taking building industry.

The other event of note in the coming week is the minutes of the December 7 Reserve Bank Board meeting. As widely expected, the Reserve Bank left rates on hold at that meeting. This was well flagged by the Reserve Bank Governor and he also provided guidance that the next move in rates wouldn't occur any time soon.

What is it with these guys who are so certain there is no bubble, yet they sound like a condemned prisoner getting letters from the governor whenever central bank rates are announced?

And affordability? The RP Data/Rismark measure that is well accepted by the Reserve Bank has continued to go sideways over the past six years. Hopefully we will hear a lot less about 'bubbles' in 2011.

I drink your delusional milkshake. I drink it up.

Well, I would, but I don't know what flavor a furphy is. (Shouldn't that be spelled "phurphy"?)

Your word of the day, compliments of wikipedia.

furphy, also commonly spelled furfie, is Australian slang for a rumour, or an erroneous or improbable story.
The word is derived from water carts made by a company established by John Furphy: J. Furphy & Sons of Shepparton, Victoria. Many Furphy water carts were used to take water to Australian Army personnel during World War I. The carts, with "J. Furphy & Sons" written on their tanks, became popular as gathering places where soldiers could exchange gossip, rumours and fanciful tales—much like today's water cooler discussion.

A furphy is water flavored. Figures.

What is this? Do I smell a trigger?

At least someone is willing to step up and write out a recipe for this soufflé collapsing.

China Credit ‘Bubble’ Headed for Bust, Blackhorse’s Duncan Says

“China has the greatest economic bubble in history,” said Duncan, author of “The Dollar Crisis” first published in 2003. “There’s a real risk it’s going to collapse in a Great Depression-style scenario.”

The pin that may prick China’s bubble, Duncan said, is a backlash against free trade among voters in the U.S., where unemployment last month rose to the highest since April. The U.S. House of Representatives in September enacted legislation that would let U.S. companies petition for duties on Chinese imports to compensate for the effect of an undervalued yuan. Protectionist sentiment could gather steam in the next two to three congressional election cycles, Duncan said.

Premier Wen Jiabao’s government has been creating about $250 billion worth of yuan each year “out of thin air,” Duncan said. To keep its currency from appreciating, the People’s Bank of China has been printing yuan to offset the dollars flowing in from a trade surplus that expanded to $27.2 billion in October, the most since July.

Australian Clearance Rates for Week ending December 12 2010

Clearance rates seem pretty set on their current downward trend line.

Australian House Auction Clearance Rates Oct-Dec 2010

China's Ghost Towns from Satellite

Click on the link below for the pictures.

The ghost towns of China: Amazing satellite images show cities meant to be home to millions lying deserted

These amazing satellite images show sprawling cities built in remote parts of China that have been left completely abandoned, sometimes years after their construction.

Some estimates put the number of empty homes at as many as 64 million, with up to 20 new cities being built every year in the country's vast swathes of free land.

This could just keep going on, possibly. But this level of waste feels like already the third round of full bore desperate policy to avoid a reckoning and it can't possibly go on even another year.

What brings this behemoth market down? Interest rates finally break the backs of speculators? Inflation destroys the consumer and makes even empty city building impossible, leaving unemployment skyrocketing? (That Real Estate sector is 60% of GDP, keep in mind.) Or in a true fit of irony, Vancouver and Australia's markets start to decline and in the race to sell, China's real estate gets triggered for a fall as well? Gods love irony, I'm going with the last in combination with the others.

Economic Unsustainability - Canada's Households

Canada's bankers are requesting changes to mortgage terms to reduce record Canadian household debt. 70% of household debt is mortgages.

Nice set of charts from the Financial Insights blog that compares the 5 year rate of growth in inflation, wages, consumer credit, and mortgage credit for Canada's households and discusses the implications of pulling back on more generous 35 year, low downpayment mortgages.

The Great Mortgage Amortization Debate

But the debt must eventually be repaid, and therein lies the great catch. When a society embraces a secular trend towards debt tolerance and consumerism, it’s also likely that it will experience a mean reversal in the form of an equal but opposite secular trend. The expansion in debt cannot outpace income growth indefinitely, but two things can prolong its life: Declining interest rates and/or loosening standards. But even these have their limits.

We have not travelled as far down that road as our American friends, but we’re far enough now that the return to a mean will be far from painless.

Actually, Vancouver HAS travelled that far.

Vancouver, Canada, and US House Prices through September 2010

Update: A couple of points about this chart. I realize the standardizing line (~75 on this chart) is not the bottom of each market. Fair enough. On the other hand that 1990s stable line in the U.S. is something in the manner of $135,000 dollar average price (U.S.$), and in Vancouver, $500,000 (CAN$). Even considering the shift in exchange rates (or at this point, especially considering . . .) doubling 135k is far less of a stunning feat than doubling 500k in the same calendar time. The standardizing mutes Vancouver's precipitous dollar-value rise relative to the other lines on the chart.

TD Economics Report: Can Meet Road

Data Release: Household net worth continues to improve, but still impaired by high household debt
Ah, the art of kicking the can down the road.

Household net worth increased by 2.7% in the third quarter of 2010, recouping all the losses experienced in the prior quarter plus some. Net worth increased by 5.6% from year ago levels, which is the slowest pace of growth since the recovery in net worth began in the last quarter of 2009.
• The gain in net worth was largely driven by the rebound in equity markets that bolstered the value of household’s financial assets, led by shares (+6.2%) and life insurance and pensions (+3.3%). These assets are tied to gains in the S&P/TSX which was up smartly in the quarter. Other financial assets that appreciated nicely in the month include foreign investments (+13.7%) and bonds (+3.1%).
• Real estate assets continued to appreciate at a decent clip, with the value of residential structures and land up a combined 1.2%. On a year-over-year basis, real estate assets appreciated by 6.1%.

The rest of the report is a lot of minced words that in short say: oh, we'll be stalled for a while. Five years or so. Go about your business.

This is what happens to household equity when real estate normalizes.

As to the shares, those are paper assets and they are subject to the same winds of consumer confidence as real estate. When those shift, guess what happens to both of them? And insurance entities . . . what are they invested in?

But when all the chips fall, what's left? The paper values vanishes, but the debt load is still there. Claiming debt loads are offset by paper wealth in the middle of a bubble is disingenuous at best. And at this late stage, that's a kind assumption.

Shanghai Halts Fixed-Asset Lending, Nov 2010 Lending 7x Nov 2009

Shanghai Halts Fixed-Asset Lending through Year End

China's banking regulator has ordered Shanghai-incorporated banks to stop extending loans for fixed-asset investment for the rest of the month, two people familiar with the situation said Thursday

Loans for fixed-asset investment typically have a maturity of more than two years and are usually used to finance real-estate and machinery purchases, and the development of facilities.

Banks in Shanghai extended 36.1 billion yuan of new yuan loans last month, more than seven times the level in November last year of 4.8 billion yuan, data from the central bank's Shanghai headquarters showed.

My bold.

Generally we think of debt addicts as the borrowers. But this a new twist on that.

China Crash Predictions, Part 7 - Katsenelson

A long interview with Vitaliy Katsenelson.
Business Insider Interview from November 2010 - The Only Question About The China Crash Is When

Re: measuring the bubble: the real estate price to income ratio

This ratio is important because it helps put the scale of the Chinese real estate bubble in its proper context. In Tokyo, at the peak of the massive Japanese bubble, the ratio stood at nine times. In Beijing it’s already 14 times. In Shanghai it’s over 12 times. The national average for China is pushing 8.2 times right now. So housing affordability is very, very low, and the housing prices are extremely high.

Re: Chinese consumers picking up the slack

So on the one hand, you have U.S. and European consumers representing 20 trillion dollars in purchases, versus Chinese consumers at about 2 trillion dollars. In other words, U.S. and European consumers are 10 times the size of the Chinese consumers. As a result, a very small change in consumption in the U.S. and Europe has to be overcompensated by a huge increase in consumption in China . . .

Re: triggers, and what to watch for?

It’s very difficult to know exactly what’s going to be the straw that breaks the camel’s back. It could be a slowdown in the Japanese economy, or a double-dip in the U.S., or some other factors that are not apparent to us today. It could be just the simple fact that the Chinese government is trying to put the brakes on the economy and mistakenly does too much.

I don’t trust government-reported statistics, thus I’d watch numbers that the Chinese government is less likely to fudge: electricity consumption, which was down during the global recession, same-store sales of American fast food restaurants in China, tonnage of goods shipped through railroads, and, though they may lag, sales by American and European companies in China.

[Catch the rest of the China Crash Predictions Series]

Property Tax Rise for Vancouver

Vancouver property taxes hiked 2.2%

This translates into a 4.2% increase for homeowners and gives Vancouver an operating budget in excess of $1 billion for the first time.

If I'm estimating this correctly, that will result in a 4.39075 levy per $1000 taxable value on residential property, up from 4.21377. Or an additional 0.17698 per $1000 or for the average detached property: $141, or for West Vancouver: $300 (assuming no grants).

Chinese go real estate shopping in Japan

So much liquidity it flows everywhere.

Chinese Property Investors Go Shopping in Japan

Asian firms and individuals have made 18 real-estate acquisitions in Japan this year, valued at $372 million, up from eight last year, according to Dealogic. That compares with U.S. buyers' three deals totaling $6 million and European buyers' one deal, Dealogic reports. (These numbers exclude deals involving private companies and funds.)

Given that China has a brand new shiny 5x5 cubicle of office space for every man, woman, and child, you'd think they'd have plenty of their own buildings to play with.

Homes out of reach for 85% of Chinese, Central Bank raises reserves again

85pc of urban Chinese cannot afford to buy a home as inflation accelerates

Official statistics showed on Friday that prices in 70 major cities had recorded their third straight month-on-month rise in November, rising 0.3pc on the previous month and at an annual rate of 7.7pc.
"Property prices are likely to remain high for a while," predicted Matthew Fang, an analyst at Guosen Securities, adding that demand was still strong and that inflation was rising.

Demand is still strong? From the remaining 15% of the population, I suppose. How many homes do they need, each? And who are they going to sell them to? In the middle of the bubble everyone somehow forgets that the future price is based on the existence of a future buyer.

According to its figures, new homes in seven out of the 35 cities were more than 50pc over their fair value. Property prices in Fuzhou are 70pc too expensive, while those in Hangzhou are 66pc overpriced. New homes in Shanghai are 37pc overpriced and those in Beijing are almost 50pc overpriced.

On a related note, looks like China's central bank wimped out on raising rates and instead raised reserve requirements again.

Australian Auction Clearance Rates Continue Slow Slide

Australian Auction Clearance Rates October-December 2010

Sydney dropped below 50% for the first time since December 2008 (chart at RPData.com)

Note that discontinuity between the close in 2008 and the open in January 2009. That's China's $600 billion stimulus working in between there.

Jim Chanos Chimes in with an Update on China

China Overbuilding to 'Hit a Wall': Chanos Includes Video.

"China will be the big story as we get into the new year."

The nature of the growth is the problem. Chanos believes China is more of a real estate economy than an export driven one, citing real estate as 60% of GDP compared to exports at 5% and consumption at 35% (a decline over the last ten years). He believes the 12-15 million units China constructed in 2010 are overhang now as sales in the last year and a half have been relatively flat. He also warns that with their very low margins, Chinese companies cannot tolerate any increase in costs, including wages, which need to rise to accommodate inflation. And many companies are going to be losing money if they aren't already. Many of the companies he has looked at have accounting issues.

The U.S. is in the best position relative to other trading partners given these threats.

On top of all that, most of the migrants from the countryside work in construction so as soon as that dwindles, these workers will go back to the country further exacerbating the overhang.

Chinese state media warning on property bubble

Maybe they figured out this is the only way to rein in the shadow-funded portion of the market.

China's property bubble getting worse: state media

BEIJING — A Chinese government think tank has warned the country's real estate bubble is getting worse, with property prices in major cities overvalued by as much as 70 percent, state media reported Thursday.
Of the 35 major cities surveyed, property prices in eleven including Beijing and Shanghai were between 30 and 50 percent above their market value, the China Daily said, citing the Chinese Academy of Social Sciences.

Chinese insurance companies and sovereign wealth funds expected to buy up Australian real estate

Overseas funds ready to snap up our real estate

COMPETITION for core Australian real estate could toughen.
Chinese life insurance companies and new sovereign wealth funds are looking to include property in their investment portfolios, The Australian reports.

Buying into an elevated market . . . caught up in the mania or very concerned about inflation? That would have to be very very concerned to make up for paying nearly double.

Development Loans Halted in China to all but 16 State Owned Firms

Only state controlled developers are allowed loans now. One might see this as a political move as well as a fiscal one. One expects this will push up the percent of foreign capital used for development. Tangled webs and all that.

China banks told to tighten grip on property lending

Domestic media reported earlier this week that CBRC ordered banks to confine their new loans to 16 developers on the list.

China ordered state-owned firms to divest from the real estate industry, except those with property development as their core businesses.

In the end, we may be able to estimate the size and leverage of the shadow banking system by virtue of how much real estate activity is left after it is the sole source of funding.

Sydney Capitulating? Melbourne Holding Out

Analysts see reality settling over the Australian housing market. Market by market.

The next few months will be critical -- The Friedman Unit of real estate. Given that their housing season is as inverted as their world map, the Aussies may give us an early glimpse for what is to come for Canada in their springtime.

Property sales will slow over summer as sellers are forced to become more realistic: Expert

"Then what will happen is that we'll see these sellers putting them fresh on the market in January or February after this two or three week hiatus. Then what we're going to see is that sellers will reflect on how urgently they need to sell and what price they can realistically get."

The comments come after a number of property analysts, mostly led by SQM Research director Louis Christopher, have identified a huge amount of stock on the market over the Spring season. Sellers have been wanting to capitalise on huge growth in prices, but buyers are wary after several interest rate increases.

Airey says that the Summer season will be one of reflection, given that sellers finally realise they won't be getting the prices they've hoped for.

This is the point where we find out which homeowners were truly speculators and which were homeowners with benefits of feeling rich, while they could.

Where did that housing shortage vanish to?

Any growth in China below 8% would spark sell off.

China’s ‘Treadmill to Hell’ Is Worth Mind Game: William Pesek

Dec. 6 (Bloomberg) -- Fitch Ratings is performing a timely mind experiment: Pretend Chinese growth fell below 5 percent.

(Not that they are predicting that or anything, just to be clear)

“Any credible prediction below 8 percent would spark a huge risk sell-off,” says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore.

Visualizing Vancouver's Detached Housing Market -- Two Charts

It is difficult to assess the state of Vancouver's market because it has not been "normal" for at least a decade, if not almost two. Year to year comparisons using the last two years are almost random because of the record highs and mini crash of 2008.

I did up two charts to try to better see the state of things. The first is a circular graph. Note that December of one year connects to January of that same year, not the next year as it probably should. Just an artifact of the software.

Chart of Detached House Sales Vancouver 2006 - 2010

What does this tell us, if anything? The blue line, 2010, looks like the second worst year of the five, maybe the middle year, if we are generous. Except for the expanding finish it is putting on. The other thing I notice is that 2009 appears rotated around later in the year, as if the missing activity from early in the year got shifted to the end.  The blue line also looks to be trying to buck the usual year end slow down trend.

Detached House Sales Bar Chart 2006-2010 with average line

2008 was as much an outlier year as 2009 was in the other direction. 2010 starts out following the average line, but at the end we have a counter cyclic trend line, which if it holds up will make December an unusually active month for sales, comparable to 2009's numbers. I'm as big a bear as they come, but for those trying to get out of this market, there may still be time. (Especially with an 8 in the address.)

China in a virtuous cycle of rising costs

HSBC China PMI hits 8-month high, inflation rises

Costs paid by manufacturers rose at the swiftest rate in 28 months, driven by higher raw material prices; the input price sub-index is now up almost 36 points since July.

Markit, the British research firm that compiles the PMI for HSBC, said the output price sub-index was at a level "indicative of a substantial rate of inflation".

The 24/7 Wall Street Blog summarized the problem thusly:

China may be one of the possible causes of a growing worldwide inflation of raw material prices. It has created its own virtuous circle as it buys more gold, but the cycle has begun to turn vicious as it presses into other markets like oil. The Chinese economy may be huge, but it is not immune from the sharp increases in the price of imports–price increases it has been critical in driving.

Sales Down, Prices Up in Vancouver

Home sales still falling in Vancouver and Calgary

Sales also continue to slump in Vancouver, Canada’s most expensive city for housing. November sales were off 18.6% from a year ago. Prices are up with the benchmark price for all residential properties $580,080, a 4.1% increase from a year ago.

Like Australia, the high end is holding up the average sale price. Almost certainly the influence of outside money, which has a strong preference for the high end.

China's house prices up 34% and Foreign Money is up 48% in sector

Party on, Garth.

Home prices in China continue to climb

Housing prices in the country's 10 most expensive real estate markets rose an average of 34 per cent last month from a year earlier, it added.

How are those cooling measures working out? Can't impact what isn't regulated.

Overseas money floods Chinese property market

In the first 10 months of this year, the utilisation of foreign capital in the real estate sector jumped 48.04 per cent compared with the same period in 2009. In October the figure hit US$8.7 billion (S$11.45 billion).

Moody's predicts a 15-20% drop in prices, but still rates the sector "stable." Do recall how stunningly adept Moody's was during the U.S. bubble, rating garbage backed mortgage securities as AAA.

"Realtors Are Sprinkling the Fairy Dust of False Hope"

Says the author of the article Cowtown Moment at Howestreet.com

As the market turns, it's important to remember that realtors play a very specific role: closing deals. That's the only thing they get paid for. That means they actively cheerlead buyers when they is a dearth of them. This will end up making them look bad, but there is no helping that. They are under no incentive to act otherwise.

“I firmly believe that we’re going to see more growth and activity probably not too early in 2011,” says local cartel president Diane Scott, “but I think about February or March we’re going to see a lot of people coming off the fence.” She bases that on, well, nothing.

Deja vu from the U.S. crash. Regency effect lives on.

If Calgary lacks an overhang from the bubble, these wishful sellers may be okay in five years. If the price of oil cooperates. On the other hand, six months and a 25% drop from now, they may kick themselves for not simply dropping their listing price 15k a week and getting out fast.

Fitch: Australian Banks Can Handle 30% Decline

Australia Banks Can Manage Housing Drop, Fitch Says

The three scenarios Fitch tested are mild stress, with mortgage defaults of 2.5 percent and a 20 percent drop in home prices; medium stress with 6 percent defaults and 30 percent decline in prices; and severe stress with 8 percent defaults and a 40 percent price slump.

The final results will be released before Christmas, Fitch spokeswoman Iselle Gonzales said.

Stress tests have lost their market luster in the wake of Ireland's meaning nothing.

China Crash Predictions, Part 6 - Hart

November 30th 2010 - Telegraph

[Mark] Hart, who runs Corriente Advisors from Fort Worth Texas, has told potential investors in a presentation that China is in the "late stages of an enormous credit bubble".
When this bursts, the financier said he expects an "economic fall-out" that will be as "extraordinary as China's economic out-performance over the last decade".

The article goes on to detail what is going on in each problematic sector. The only thing that is really new is Mark Hart's estimate of China's debt to GDP ratio, which is 107% under conservative estimates and may top 200%.

February 2010 - The FirstPost

Meanwhile, Hart and Gave have set up a fund to bet that the Chinese economy is over-stimulated and heading for a
significant crash, as predicted in my report yesterday.

October 2009 - Dallas News

"They have built more factories, shopping malls, condos, roads and bridges than could ever be put to good use, even assuming a dramatic upswing in global growth," Hart said. "Growth in actual wealth has dramatically lagged growth in credit, growth in money supply and growth in GDP. This is not sustainable."

[Catch the rest of the China Crash Predictions Series]

China's Credit Supply Estimated to Top Targets by 6.7%

China's credit supply may top government targets

"The total credit supply for 2010 is likely to reach 8 trillion, exceeding the government target by 6.7 per cent, said Liu Yuanchun, deputy director of Renmin University's School of Economics.

New loans stood at 588 billion yuan in October . . .

Credit demand remains vigorous and new-loan growth may well exceed 7.5 trillion yuan next year if the policymakers do not adopt tough measures to contain growth, China Securities said in a report.

The Spin is In on Canada's Latest Housing Numbers

Dream of home ownership gets easier in B.C., RBC report says

B.C. homebuyers have won a temporary reprieve from the sharp drop in affordability since the middle of 2009, according to a national report released Monday by RBC Economics Research.

Ha ha ha. Awesome. Ignore any questioning of the wisdom of buying an inflated asset that sucks up 50% of your pretax income for the next 30 years.

"It was a combination of a drop in interest rates and some softening of pricing that lowered monthly mortgage payments," RBC senior economist Robert Hogue said . . .

Holy Moly people. Did you learn absolutely nothing from watching California's market blow up? Using monthly payments as the sole metric for affordability was the key to the entire debacle from the buyers' side. That's why teaser mortgages worked so well, because people were using such an incredibly short-sighted measure when signing their economic lives away.

You need to look at opportunity cost. You need to stress test your personal finances ten years into the future for rate changes. Also project the total equivalent rent for all shelter options and then look at the totals. Then you need to estimate the risks. What are the odds that this market is going to continue to go up? You also need to look at how long you plan on living in each shelter option, then factor in some not unlikely unplanned events. What happens if you get divorced? Need to change jobs? How much of a loss are you willing to take if you are forced to sell without regard to market conditions?

If you really want to learn from California, when you are done with these other analyses, ask yourself: How are you going to feel facing a $1.1 million mortgage when the equivalent house down the street sells for $700,000. Ah the "Dream of Homeownership" . . . Dream, nightmare, same difference.

Added: The Australian decline from peak is also being sold as the greatest buying opportunity in the world. Crazy like a fox, I suppose. But still crazy.

Vancouver Canada Housing Bubble Showing Peak

A Tale of Two Bubbles in Chart Form: USA and Canada

Canada and Vancouver House Price Bubble Chart September 2010

The Red and Bronze Lines are from Teranet House Price Index and the Grey Line is from S&P Case-Shiller House Price Indices

Prices are down month on month in Canada overall 1.07%, Vancouver 0.34%, Toronto 1.58%. October 2010's numbers will not be available until Christmas.

Hong Kong Resales within 12 Months up 114% Year on Year

Housing bubble risk intensifies in Hong Kong

The situation has been deteriorated suddenly, Eva Cheng, Secretary for Transport & Housing, told legislators on Wednesday. Short-term resale transactions are increasing rapidly in Hong Kong, she said, adding in the first nine months of this year the number of resales within 12 months of acquisition rose 114 percent compared to the same period last year.

I don't know about "suddenly" unless we are discussing geologic time.

Property Developers Worst Performers on Shanghai Index

Ghost Towns In China Due to Property Bubble

The worst performing group on the Shanghai Composite Index this year are China’s property developers, and BNP Paribas says to expect the correction in Chinese real estate prices due to lending curbs and tighter money to intensify into 2011.

The post goes on to warn that a housing slowdown will impact the rest of the Chinese economy.

Private housing accounts for 13% of total investment in urban areas, and home construction accounts for 14% of all workers in urban areas, according to dailymarkets.com.

Fantasy Comments by Byron Rose Still Making the Rounds

The Real Estate Buyers Association of Australia president's comments from The Daily Telegraph November 17th sure have legs. The comments contain some points (much repeated) worth noting to point and laugh at later. We seem to be in the wishful thinking phase of this bubble. Things are getting wobbly and those with a large vested financial interest in keeping the markets inflated get defensive and grab hold of any evidence to support a solid reality to justify bubble prices. This phase is also marked by these same people attacking analysts and bloggers as causing the downturn. Which is always a hilarious accusation.

The only part of this article which is true, is the "unprecedented international land grab". Yup, but you say that like it's a good thing. Leaving it out there as a metric of something other than excessive foreign money distorting the local market. These outside buyers are not smarter than the local buyers, they are in a frenzy. That doesn't add up to a precedent to follow or anything.

Doozy number one:

“They know the market is depressed - they are making huge capital gains and are reinvesting into the market.”

"Depressed"? Where to even go with that? Take a look at any Australian property price chart. Like maybe this one. That price scale ought to be plotted logarithmically it is so elevated.

CBRE senior managing director of international investments Rick Butler blamed Australian banks for the situation. “The banks are saying they are lending but in my view they aren’t,” . . .

The banks actually maybe learned a lesson from the U.S./U.K./Ireland crash you are saying? Banks in the U.S. were twisting the arms of appraisers to raise valuations. If they had kept valuations realistic, their books would look better and we wouldn't have 919 banks on the unofficial problem bank list. Still. Years after the crash. Complaining about bank valuations being too strict is the same as arguing that you want the subsequent downturn to hurt as long as possible.

“The foreigners are there because they see Australia as safe, secure and actually having growth, which puts us in a much better position than old Europe and the US.”

Growth based on what? Exports and what else? Real Estate.

Australian Auction Clearance Rates for November 21 Reinforce Downward Trend

Clearance rates made another downward jog last reporting period.

Sydney: 50.6%
Melbourne: 54.5%
Brisbane: 18.5%

Latest Auction Results from RPdata.com

Australian Clearance Rates Chart, October - November 21 2010

Agent: Chinese Represent 80% of High End Home Sales in Vancouver

Long narrative style article in the Globe and Mail full of anecdotal evidence.

Vancouver attracts only 15% of new immigrants to Canada, but it attracts a full half of the 10,000 very wealth immigrants who come. It is a lifestyle destination, not an industrious destination.

Is Vancouver in a Real Estate Bubble?

Lui explains why she’s so confident the home will sell: “It will appeal to a buyer from China.

Now long-term Vancouverites and incoming Chinese are seeking almost exactly the same thing—except, Lui says with a laugh, “we can’t afford it.”

True. When Lui says “we,” she’s talking about the locals, people who make their living in Vancouver.

If “buyers from China” answers the “who” question about Vancouver’s unique real-estate market, the follow-up question—“Where is this leading?”—is harder to answer. The torrid affair between eastern Asia and Vancouver real estate, now in its third decade, is actually a love triangle from which each party derives very different things. When wealthy Chinese immigrants buy property in Vancouver—and they utterly dominate the top end of the market—they’re actually buying a form of insurance.

And the kicker:

The buyer will likely be from China as well: Lui estimates that up to 80% of recent sales in this price range have been going to buyers from mainland China.

So, you have a situation where the prices have moved beyond the range of the locals. They are set by immigrants and foreigners instead. And should the immigration and foreign investment dry up, what does the market price revert to? Note that in this scenario, housing itself as an economic engine (1/5 of the country's GDP) also dries up, leaving the locals a bit poorer yet.

Hong Kong 15% stamp duty on homes sold within 6 months

The battle against the bubble continues. Flippers targeted.

China Day Ahead: Reserve Ratio Increase; Hong Kong Real Estate

Hong Kong intensified a yearlong battle to curb surging home prices with additional taxes and higher down payments a day after the International Monetary Fund warned that asset inflation may derail the city’s economy.

Homes sold within six months of purchase will incur a 15 percent stamp duty from Nov. 20, Financial Secretary John Tsang said in a briefing. Down payments for homes costing HK$12 million ($1.5 million) or more will rise to 50 percent, from 40 percent. A stock gauge of developers in Hong Kong fell for the eighth day in nine ahead of the announcements.

China Trust Firms Halt Property Loans

China's trust firms halt property loans -sources

Seeing risks in rapid credit expansion to real estate projects, the China Banking Regulatory Commission last week instructed trust firms to assess the risks posed by their portfolios in a fresh move to rein in the red-hot property market.

Property-related trust investment totalled 150 billion yuan ($22.6 billion) in the first 10 months of this year, compared with 40 billion yuan in the whole of 2009, according to Use Trust Studio, a private data provider. ($1=6.639 Yuan)

On the heels of the false rumors last week regarding banks halting property loans. This seems a bit better sourced.

Report: China prices to fall 20% in 2011 (Can it really only fall 20%?)

China's property prices to down 20% next year, report says

BEIJING, Nov. 21 (Xinhua) -- China's property prices are likely to decline almost 20 percent next year starting from March or April, according to a report issued by the Beijing-based Renmin University of China (RUC).

Meanwhile, Liu ruled out a steep correction in the nation's property market, saying that tight financial situation will not cause a sharp price plunge and the market is expected to realize a soft landing.

The problem with a soft landing call is the prices quadrupling was speculator driven in the first place. Speculators, once the market falls even 5-10%, are wiped out. Broke. They cannot form a floor in the market to keep it from falling farther. The floor will be formed only when investors looking for rental properties and future owner-occupiers step in and start buying and they won't step in until price to rent ratios and price to income ratios return to rational. Guess what, that's a long way down from a 20% "soft landing". A heck of a long way.

Tied to the U.S. Dollar, Hong Kong Cannot Control Its Future

IMF warns Hong Kong about runaway housing prices

Hong Kong’s fixed exchange rate system with the US dollar means Hong Kong essentially imports the interest rates set by the Federal Reserve, currently very low.

In other words, Hong Kong can’t raise interest rates to counter a housing bubble and inflation.

In lieu of raising interest rates, Hong Kong has been raising downpayment requirements, to no avail. Sound familiar?

Mish Thinks Australia's Housing Bust Has Begun.

In an awkward analogy, perhaps meant to soften the blow for those reading it from Downunder, Mish lays out what he sees as the state of the real estate market in Australia.

Partied Out: A Recap of Australia's Now Imploding Housing Bubble

Meanwhile, the group of bar owners and bartenders known as the “Big Four” were forced to pass along the central distributor's price hikes. Nonetheless, the masses kept drinking and partying. It was quite the spike government officials threw into the punch!

In an act of desperation, the “Big Four” bar owners finally raised prices even more than the wholesale liqueur distributor. They did this after becoming worried about the consequences of drunks passing out on the floor, in the street, and in the outback, unable to pay their "bar tabs".

It certainly took longer than I expected but signs suggest the Australia housing boom is finally over. The bubble will take years to unwind.

He goes on to cite the increase in inventory, the poor result of the Sydney Opera House auction, a fall in construction financing, and a decline in general business conditions.

I think there needs to be a bubble and bust in bubble bust calls before the actual bust is in. I'm inclined to believe the higher inventory is home owners who decided they are actually investors who would like to lock in their profits, now, thank you. Do they really have to sell, or are they just hoping to? Market wise those are not the same condition. It's when owners become desperate sellers that the air really begins to leave the bubble. Strategic cash-outs are not the beginning of the end. As well, a general decline in business conditions, given that most mortgages are adjustable, could be the adjustment in mortgage rates sucking up household discretionary funds, not a broader decline in employment or pay rates.

Basically, this doesn't feel like the end yet. If the government *dropped* rates in a desperate attempt to shore things up in the broader economy . . . that would feel like the downslope was really in. We're in the ego stage where people fight over meta realities still. They are not fighting over solid trends in numbers yet.

China Crash Predictions, Part 5 - Rickards

March 2010 Examiner.com

[Jim] Rickards explains his theory by comparing China’s central bank and economic management to that of a typical hedge fund. China is hedging some of its economic risk by “buying dollars and short-selling Yuan.” in hopes to offset risk in their economy. By doing this however, it is stopping the Yuan from gaining strength. The weakening Yuan could be the tipping point causing an inflationary risk to the market.

Ah, now we are getting into triggers. And what is China fighting right now?

Just today:
China's suspends diesel exports as country fights inflation

The decision by state-owned Sinopec will help meet domestic shortages blamed on a government conservation campaign and possible hoarding by state oil companies.
Politically sensitive food costs surged more than 10 percent as inflation jumped to 4.4 percent in October, well above the government's 3 percent target.
Diesel supplies ran low after thousands of factories bought diesel generators to cope with power cuts imposed by authorities to meet energy-saving goals. That boosted already strong fuel demand.

Speaking of misallocation of capital.

March 19 Analyst Wire Interview

Now, what they're doing is they're leveraging up in that sector. And there's a very large shadow banking system in China that's not well known. People look at the banks and they say well they're fairly healthy, and they are. But banks always look healthy until the values collapse and that's when they start to crash themselves.

But there are a lot of unregulated lenders. There's a lot of in affect defector banks that are lending and fueling and this. And then the local governments, the provincial governments are adding to the problem very much like Fannie and Freddie, which is that their source of revenue is from these property flips.

They need to get these local governments out of the business of, you know, stoking the flames of property speculation, so to speak, and raising interest rates would be another good way to do it.

Very similar to the United States, I mean what's developing in China in the property sector looks like the U.S. from 2002 to 2006. Again, there's a real economy there but there's this bubble growing on the side. We know when bubbles break the contagion spreads to other sectors and that's the concern.

[Catch the rest of the China Crash Predictions Series]

A closer examination of land sales in Perth reveal all is not well

It's busy today at The Australian.

Statistics hide fact demand has gone west

The Real Estate Institute of Western Australia has warned not to read too much into the 12.5 per cent increase in the September quarter median price of land.
. . . there has been an increase in sales of more expensive lots closer to the city and fewer sales at the more affordable urban fringe.

But the valuation firm says everyday examples paint a varied picture.

At the upper end, a premium vacant lot in North Coogee, a southern beachside area near Fremantle, recently sold for $1.025 million after being purchased for $2.2m in November 2007.

Given that some other lots in the street originally sold for more than $3m, there is more pain to be felt, HTW says.

This happened in California too. The mix started to shift, making it difficult to determine what exactly was happening. Firesales of a handful of high end properties more than makes up the difference for a decline in medium value properties, resulting in the average sale price going up (or in the case of California, making it appear to bottom out early).

Australian Treasury Official Warns of House Price Bubble

Treasury warns about home price bubble

"(I) know there are very supportive fundamentals, but prices rose by 50-60 per cent in three to four years in the early part of this decade, with largely unchanged fundamentals, so they can have a life of their own.

"And given what's happened elsewhere I'm far less sanguine about this - and the interplay with debt - than in the past."

But meanwhile, back at the ranch:

A spokesman for Wayne Swan said yesterday the Treasurer retained the view that Australia did not have a property bubble, citing recent reports and statements by Westpac and the RBA. "Of course, we expect our officials to test and debate policy within the department - it is an important and normal process of government," the spokesman said. "However, it is the considered position of the Treasurer and the Treasury that our housing market reflects the fundamentals of supply and demand and not a bubble - specifically that Australia is simply not building enough new houses."

China Crash Predictions, Part 4 - Chanos

The earliest Cassandra in this little mini-series (so far), famed for seeing big problems early and cashing in on them, James Chanos. The articles below stretch all the way back to September 2009, long before the cool kids got into the making calls on China game.

AdvisorAnalyst.com September 2009

Major investors are starting to question whether Beijing is telling the truth. "I think the story is getting harder and harder to believe," says widely followed billionaire investor and hedge fund manager Jim Chanos.

Business Insider November 2009

Chanos is reportedly attempting to short the entire Chinese economy. What's fueling the short case against China?

The $4.3 trillion Chinese economy is under-performing despite a $900 billion stimulus program.
China seems to be cooking its books. For instance, it reports that car sales are surging while gasoline consumption is flat. Is that realistic? Or are state run Chinese companies just stock-piling cars?

CNBC December 2009

Chanos points out a stark irony that investors who decry government involvement in US companies are bullish on the Chinese markets, despite the fact that the country's government can "fine tune" the economy to their liking. He is also skeptical of the country's GDP numbers, calling them "massively inflated by under-depreciating a very, very, very shaky capital asset base."

January 2010 NY Times

Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.”

I also liked his notion that GDP is a residual, not a target. By making it a Communist Party target, China guarantees excess growth.

Fortune November 2010 - Chanos: Right or wrong?

Housing prices are down in major cities while supply is growing: New residential real estate investment alone accounted for 14% of China's GDP in 2009, and housing prices have started to come down, though the overall supply is still growing sharply in 2010. Even Goldman Sachs forecasts a 10% to 20% housing price decline between now and the end of 2011.

The trouble the early warning folks have is being wrong, completely wrong, in the short to intermediate term. Many blogs and a small handful of economists came in for years of berating for their bearish calls on the U.S. real estate market. Years of it.

Don't underestimate China's ability to pump this thing up much longer than would seem possible to the reasonable mind.

Special award as always to Shaun Rein
Jim Chanos is wrong there is no China Bubble

There are, however, fundamental differences between China's real estate and consumer finance markets and those of the U.S. and Dubai, which Chanos compares them to. First, when buying residential properties, consumers in China have to put down 30% before taking out a mortgage. For a second home, they have to put down 50%, no matter what their net worth. Therefore, China doesn't have the reckless consumer behavior that occurred in the U.S., where people with bad credit were taking out huge loans from Countrywide with no money down, or were buying 10 homes without deposits in the hope of flipping them in a few months. People who buy homes can afford it.

People with $4k of annual disposable income are buying apartments priced at $150k because they can afford them, people. They can afford them so much they buy them and don't even live in them. And no one, but no one, is borrowing money outside the banks so they are all subject to these new restrictions, nor are they flipping houses within buying clubs or leveraging, or any of that stuff. No one. These people can afford these houses. Shew, glad to hear it. For a minute there I thought there may be a problem.

[Catch the rest of the China Crash Predictions Series]

Vancouver Island Sales and Prices Take a Hit

For October 2010, number of sales down 46% year on year.
Prices down 4% to $318,619 year on year.

Comox Valley Record: Home sales decline

Australian Clearance Rates Hold New Lower Level

Auction Results per Individual State - Nov 14, 2010

Chart of Auction Clearance Rates for Melbourne, Sydney, Brisbane for October 2010 - November 14 2010

Clearance rates for the two largest cities that were consistently 65% are now hovering from 53-55%.

The way I see this playing out is initially the top end will hold out longer as that is the preferred investment of the Chinese investor, while the middle value sales will slow. I included Brisbane on here, just for the color ;-) It's almost too noisy to bother looking at it. When I get a few more months of data in the spreadsheet, I'll smooth it out.

Australia Cascading Bubble Inputs Redux

While we await the Nov 14th clearance rate report which might let us know if sales are scrambling at the edge of the cliff or just glitching a bit, I made a quick overlay as a follow up to Cascading Bubble Inputs Australia.

Australia House Price Chart Overlaid with Terms of Trade

Input 1 is the same as everywhere else, low interest rates. Input 2 kept Australia from falling along with everyone else (the U.S. is shown for comparison). The influx of money from selling to China can be measured a few ways, but here I have included Terms of Trade from this government site. I overlaid it with the Economist.com Clicks and Mortar Chart.

It's all about liquidity. Too much money chasing too little housing. And while the shortage of housing may not ease in the medium term, the excess money is less of a certainty.

China Crash Predictions, Part 3 - Shih

For the record, it does not appear that Shih believes in a crash, just a massive bailout. He believes the Chinese government will back up the banks and since everyone knows this, there will not be a panic.

March 2010, Victor Shih, quoted in Harvard’s Rogoff Gives Legs to China Crash Talk: William Pesek

Victor Shih of Northwestern University in Evanston, Illinois, is focusing on another $1.6 trillion figure. That’s how much debt he estimates China’s local governments are sitting on. If the argument Shih fleshed out in a Feb. 8 piece in the Wall Street Journal is correct, local debt alone is one-third of China’s 2009 gross domestic product and 70 percent of foreign- exchange reserves.

Also from March 2010, Victor Shih Sees Bank Bailout Redux

According to Victor Shih, assistant professor of political science at Northwestern University — and a regular contributor to The Wall Street Journal’s opinion page (see articles here and here) — the massive increase in new lending China’s banks embarked on last year may mean that in coming years China’s banks will be faced with a huge spike in nonperforming loans and will have to again turn to the government, cap in hand, to bail them out.

June 2010, Shih: Moral Hazard and China's Banks

In China, just as in the West, banks and businesses have grown accustomed to gambling with other people's money on the assumption that the government will bail them out if they lose.

[Catch the rest of the China Crash Predictions Series]

TD: Canadian Home Sales Continue to Improve

Move along. Nothing to see here.

Release: Canadian home sales continue to improve in October

• If you’ve ever wondered what a soft landing in housing looks like, this may well be it. The string of three consecutive gains in monthly sales helps confirm a stabilization of market activity. It appears that Q3 sales marked a trough with 98,000 units sold. If sales in the remainder of Q4 simply held steady at the October level, this would mark a near 10% improvement from Q3. With only two months of data left in the year, year-to-date sales are roughly in line with those of last year near 375,000 units.

Pouring the diverse markets of Canada into one big pot seems almost guaranteed to average things out. Faced with Vancouver's numbers alone, I'm curious how he would spin things. The September report doesn't split out any provinces or cities either for a special look.

• Sales have been well supported by low and decreasing borrowing rates. As of late October, typical fixed 5- year mortgage rates had dropped by a full percentage point since April 2010, hitting all-time lows.

Shorter version: We lowered the cost of borrowing and people borrowed more. Okay, so the implication is your "stable" market relies on bribed buyers and excess money in the market. Got it.

Australian Auction Clearance Rates Hit Two-Year Low (Update)

Home auction rates sink to two-year lows

Update: Rates fell again (for the week ending Nov 7) for Sydney to 53.8% and Melbourne to 54.8%. Perth is at 16.7% and Brisbane at 29.2%.

Auction clearance rates in Australia's two biggest cities dropped to nearly two-year lows over the weekend after the Reserve Bank's surprise interest rate rise chilled buyers' demand.

Clearance rates in Melbourne, dropped to 61 per cent from 67 per cent the week before, according to the Real Estate Institute of Victoria (REIV). In Sydney, they fell to 54.6 per cent from the previous week 57.5 per cent, according to Fairfax-owned Australian Property Monitors (APM). 

Chinese Buyers are 40-50% of Vancouver Presales : Colliers

These are Chinese Mainlander Buyers, specifically.

Chinese demand overseas property opportunities

“Buyers from the Chinese mainland represent between 40 and 50% of the current market for pre-sale projects in Vancouver, for instance,” says Colliers, “and perhaps a greater percentage for the high-priced single-family residences in Vancouver's most prestigious neighbourhoods.”

Chinese Buyers are 20% of Sydney Residential Sales

Chinese buyers represent 20% of Sydney Residential Sales, up from 14% in 2009. 35% of Hong Kong sales up from 30%.

China towns (Financial Times)

Some 475,000 Chinese have assets of $1m or more, according to the wealth management strategy firm Scorpio Partnership.

Beijing limits its citizens to taking $50,000 out of the country each year, but many thousands of Chinese quietly skirt round these capital controls.

China Limiting Property Purchases by Foreigners

It's unclear what kind of an impact this is going to have, beyond the implicit admission that other curbs are not taking hold as effectively as the government wants. Other analysts have been warning that given the liquidity, limits on property will simply drive money into stocks, which seems a reasonable assumption. (Or precious metals?) What does a China crash do to precious metals? Is it driven up by a mad scramble for safety, or is it driven down by a sell off to cover other losses?

China Limits Property Purchases By Foreigners

China on Monday announced new limits on the ability of foreigners to buy residential or commercial property on the mainland, in its latest effort to curb the inflows of speculative money into its economy and ease inflationary pressure.

"Targeting foreign investors is the easiest administrative means for the Chinese government to undertake because they represent a very small interest group," Mr. Liu said. "But when it comes to curbing hot money inflows, the measures won't be that effective."

Call for Easing Australia Foreign Investment Rules

Come on people, these bubbles aren't going to inflate themselves.

Our foreign investment rules should be eased, says OECD

The OECD estimates that if investment restrictions were removed, foreign direct investment into Australia would "increase noticeably over time".

At least she's honest enough to point out the flaw in her clever plan.

Australia's foreign liabilities are virtually all held in Australian dollars or hedged back to Australian dollars. As foreign investors seem happy to hold assets in Australian dollars, domestic borrowers are protected against exchange rate risks. During the global financial crisis this helped shield the country against the increased volatility of the exchange rate.

China Crash Predictions, Part 2 - Rogoff

Bloomberg July 2010 Kenneth Rogoff this round with the grabber headline of "Rogoff Says China Property Starting to ‘Collapse’"

China’s property market is beginning a “collapse” that will hit the nation’s banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund.

More comments from Rogoff from March, 2010 in this article. Harvard’s Rogoff Gives Legs to China Crash Talk: William Pesek

Video Here

"The data is not very reliable. . . . Exploding property prices and leverage. Doesn't mean you're going to have a crash tomorrow, it might be five years . . ."

[Catch the rest of the China Crash Predictions Series]

China Crash Predictions, Part 1 - Faber

I'm going to start my hunt for triggers by reviewing others' predictions.

From May 2010: (Marc Faber quoted in Businessweek) China May Crash in 9-12 months

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

No mention of what may trigger the actual collapse. Clearly it has only inflated since this prediction, which is due January through April 2011 to come true. Seems like it's got at least another Friedman Unit to a year ;-)

The crash itself will be money exiting the China zone. Money so far, continues to rush in, minus Chinese investments abroad (like financing Manhattan high rises).

Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb speculation, BNP Paribas said April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10 percent.

Something about this expectation that government curbs will actually do something. Speculators do not, by and large, work inside the system being curbed . . .

[Catch the rest of the China Crash Predictions Series]

Riding the wave: China is in a Bubble but is still the best investment opportunity

2/3rds surveyed by Bloomberg said China had a housing bubble, but 33% still ranked China #1 for investment opportunity for next year, ahead of Brazil, India, and U.S.

China Real-Estate Bubble Concern Fails to Deter Global Investors

Asian investors are more likely to say China is in a real estate bubble. Seventy-four [74] percent of respondents in Asia hold that view, compared with 64 percent in the U.S. and 63 percent in Europe.

Rising real estate values in China reflect the abundance of “cheap money,” said poll respondent Gordon Murray, senior credit analyst at Belle Haven Investments Inc., in White Plains, New York. “Anytime there’s a lot of idle money and a desire for yield, you can have a boom.”

Sydney House Price Gains to Slow -- RP Data

Good news, Australia, the banks on the hook for your mortgages are certain, really certain, that there will not be a crash.

Sydney Home Price Gains to Slow After 13% Climb, RP Data Says

Prices in Australia’s biggest city have risen an average 9.1 percent in the 12 months ended Aug. 31 to A$580,000 ($582,000) for houses and A$450,000 for apartments, according to a RP Data study prepared for St. George Bank Ltd. Prices are expected to stay at the current level through 2011, it said.

Home values across Australian capital cities rose 8 percent in the year ended Aug. 31 because of faster population growth and constrained supply in one of the few economies to skirt last year’s global recession. Organizations including Westpac Banking Corp., Commonwealth Bank of Australia and Fitch Ratings have said those factors, as well as a lack of speculative buying, will keep the market from collapsing.

I had the impression that the Chinese were speculative buyers . . .

Lots of articles/columns on exactly this topic of how stable everything will be through 2011. Timely enough, Barry Ritholtz has a column on this exact topic: Kiss your assets goodbye when certainty reigns

China October 2010 House Sales

Prices climbed 8.6% year on year, but sales dropped 11.2%.

China’s Home Prices Grow at Slowest Pace in 10 Months

Property prices in October rose 0.2 percent from September, according to today’s data.

Sales volume dropped 11.2 percent from the previous month, while the value fell 7.7 percent from September.

The value fell less than the volume, which implies the high end is holding out a bit more.

91% of Asians surveyed want to buy property

Expect upward price pressure to continue until something drastically shifts sentiment.

Colliers: Asian property investors feeling good

91 per cent of Asian respondents to the survey said they wanted to buy property in their domestic region and 73 per cent of Asian respondents expect to expand their property portfolio over the next year. Shanghai followed by Hong Kong and Singapore were the most desired locations for commercial property investments over the next 12 months, while many respondents showed interest in second-tier Chinese cities like Hangzhou and Nanjing for residential investments.

The survey showed a strong desire in Asian respondents to invest outside of their home countries, with 59 per cent saying they wanted to buy property overseas as opposed to just 30 per cent of all respondents

It's time to start reviewing what happened last time, to find likely triggers. There is little agreement about what happened in 1997, but that does give us a menu of possibilities, one for every theory.

Wikipedia 1997 Asian Financial Crises

Other economists, including Joseph Stiglitz and Jeffrey Sachs, have downplayed the role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs pointed to strict monetary and contractory fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while Frederic Mishkin points to the role of asymmetric information in the financial markets that led to a "herd mentality" among investors that magnified a small risk in the real economy. The crisis has thus attracted interest from behavioral economists interested in market psychology. Another possible cause of the sudden risk shock may also be attributable to the handover of Hong Kong sovereignty on 1 July 1997. During the 1990s, hot money flew into the Southeast Asia region but investors were often ignorant of the actual fundamentals or risk profiles of the respective economies. The uncertainty regarding the future of Hong Kong led investors to shrink even further away from Asia, exacerbating economic conditions in the area (subsequently leading to the depreciation of the Thai baht on 2 July 1997).[10]

China will allow local authorities to control gains in home prices

Ah, the intersection between central control and markets. It's like merging two expressways but doing it with a stop sign. This should be fun to watch.

China to Allow Control of Home Prices

Nov. 9 (Bloomberg) -- China’s government departments are drafting rules that will allow local authorities to control gains in home prices, the official business newspaper Securities Times reported today, citing people it didn’t identify.

Provincial regulators may be allowed to limit the selling prices of homes and cap profits for developers if prices gain sharply, the Shenzhen-based newspaper said.

I really can't wait to watch this.

China’s western city of Chongqing is ready to introduce a property tax, the Chongqing Morning Post reported yesterday, citing the local housing bureau.

We'll see if increasing the holding costs doesn't just drive the investors to flip more aggressively to cover this new expense. Or, since this is happening one region at a time, if the tax is egregious enough, will investors begin to sell out of this area first? And, who are they going to sell to without taking a loss?