7/31/2012 8:03 PM ET|
US housing mess: It's not the worst
China's bubble also was fueled largely by cheap credit. Unlike the U.S., though, China has dodged a crash in home prices -- so far.
Three years ago, the central government began raising interest rates to calm home sales. It tightened requirements for down payments and mortgages, and it limited how many homes a family could buy. The result: Home prices nationally have dropped slowly. It's too soon to know if the retreat will continue to be manageable. Recently, the People's Bank of China retreated from its tough stance in order to tickle the weakening economy.
There's also a wild card: local bubbles in cities such as Beijing, Shenzhen and Guangzhou. There, prices are rising, and competing buyers line up outside sales offices. Chinese have few legal options besides real estate for investing their money, which fuels a buying frenzy.
The centrally run economy allows China to directly exert control. "When the Chinese government feels the sector is overheating, it can take mitigating action more easily than most other countries," says the Wharton School's Hoek-Smit.
But the central government does not have complete control. Local governments get a lot of revenue from owning and selling land to developers. Many cities are still raising land prices and selling to developers.
"They may be able to not have a major crash," Hoek-Smit says. But with home construction so important, as in the U.S., a housing slowdown will affect the national economy. Already, developer bankruptcies are hurting banks. "It's an enormous country," Hoek-Smit adds. "Different areas will be impacted differently."
What happened in Brazil
While cheap credit was inflating the U.S. bubble by 2003 or 2004, Brazil's housing market stayed normal until 2009, says Hoek-Smit. But then, Brazil, worried by the U.S. financial panic of 2008-09, created programs to stimulate its economy by subsidizing the building of 3 million low- and lower-middle-income homes. When the economy overheated, Brazil, like the U.S., failed to act quickly to slow the growth.
Brazil's expansion, like China's, helped raise a developing nation's living standard and put many poor families in decent homes. But the price of overdevelopment is now clear. A spring report by Capital Economics, an economic research company, estimates Brazilian real estate to be overvalued by as much as 50%. Prices have tripled in Rio de Janeiro and doubled in São Paolo since 2008.
House prices are "out of all proportion" to incomes and rents -- classic tip-offs to a bubble. Brazil's boom appears to have peaked in July 2011, says Global Property Guide publisher Matthew Montagu-Pollock.
Last year, 9 million Brazilians took out loans for the first time, Ricardo Loureiro, the president of credit company Experian's Latin American arm, Experian Serasa, told a Brazilian business magazine.
Vacancies are appearing even in Brazil's subsidized lower-income housing sector, a sign of subsiding demand. Rather than discourage lending, the government made credit easier, allowing 35-year mortgage terms to let even more lower-income people afford payments.
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Its sad how both partisan Democrats and partisan Republicans fail to acknowledge their own party's failures. To vote Democrat or Republican is to be a willing participant in the destruction of this country. Those two traitorous parties (and the elite businessmen who support them, whether Cons like Koch and Adelson or Libs like Immelt and Soros) are every bit domestic enemies of the American people as al Qaida terrorists are foreign enemies.
The only hope for this country is to vote BOTH parties out of office in favor of independents and 3rd parties, impose tarrifs on foreign goods (until foreign workers have higher wages), and get money out of politics by only allowing public financing of campaigns.
I close with a quote from Cicero:
“A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself. For the traitor appears not a traitor; he speaks in accents familiar to his victims, and he wears their face and their arguments, he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist. A murderer is less to fear. The traitor is the plague.”
"People already are doing research on it. We'll be arguing about it for the next 10 years," ......Who cares. I lost my dream home in 2010. I've never sat and argued about it. I moved on and i'm rebuilding my financial life again, even in my mid 50's. I don't care how it compares to the rest of the world.
It's like arguing over the price of Gas. Nothing ever changes. Who cares. Pay for it and move on already.
Marilyn, you’re a risk. You are saying that house prices follow area wages and not the number of bedrooms. You are actually calling it a bubble and not expecting to recover. Next you are going to be saying that houses do not appreciate but follow inflation and wages. And in reality, they depreciate. I have been saying this for a good number of years since the peak and have been called sacrilegious. But house prices at 3 - 4½ should be called extreme. I will never be a real estate agent.
WE, IN GENERAL ARE RIGHT WHERE THEY WANTED US TO BE. WORKING MIDDLE CLASS WITH MEDIOCRE CREDIT RATINGS . WITH BANK OF AMERICA HOLDING BACK AID THEY ARE LEGALLY BONDED TO DISTRIBUTE FOR LOAN FRAUD AND OTHER SUCH SECURITIES VIOLATIONS,FORECLOSING ON HIGH DOLLAR HIGH APPEAL PROPERTIES AT WILL AND DRAGGING HOME OWNERS THROUGH MONTHS OR IN MY CASE YEARS OF MYSTERIOUSLY MYSTIFIYING PAPERWORK THAT I HAVE TO RESUBMITT EVERY 10 TO 20 DAYS ....YEAH THEN TACK ON THE NEW STUDENT LOAN SYSTEM,THE IRS AND NOW THE STATES TAXS MUST GO UP...YEAH I THINK THEY ARE RIGHT SHOULD BE A GREAT MARKET FOR FORECLOSURES ...
UNEMPLOYEMENT , SUICIDE....FINANCIALLY OF COURSE.
William Hinkley, Please back up your preposterous statement by showing us the part of the law that required this. Not just the CRA. Show us the actual language in the legislation you are referring to. BTW, the Community Reinvestment Act (CRA) concerned red-lining and involved a few of the largest banks. It never applied to any mortgage lending company.
luna1027 where were you when in 2008 when the lies were being reported. I was in Iraq. This administration has contained the country for the last three and half years from dropping so far off the map and becoming a third world country. The last adminstration in their last year, robbed American for every penny they could get their hands. So be careful what you asked for. Remember, if someone robs you for 8 years, it wil take more than 4 years to get back on track. How soon we forget!
I have too much gray hair. I heard that 2-2.5 times your income (excluding your wife) with 20% down was the standard. I was always told to look at taxes, utilities and maintenance for this reasoning. Remember you will fill extra rooms. And include the possibility for job volatility. 3-4.5?
Lesser house - the more you can enjoy – Greater house – the more your ego can enjoy. This is true even if inflation hits hard and eliminates your mortgage.
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Occupy Wall Street bought and forgave the student loan debt of more than 2,700 Everest College students.