Seeds of New Housing Bubble Sprouting

Only six months ago, China was worried about falling home prices and deflation. Deflation is still a concern at the higher stages of production, which for central planners, calls for money printing. Already we're seeing the problem of money printing as a solution: the money isn't spread evenly throughout the economy, but instead is flowing into a nascent housing bubble in first-tier cities.

Beijing's supply-demand in housing has been permanently imbalanced. For a brief period last year, supply outstripped demand. Now demand is outstripping supply once more, threatening out of control price rises again. Sales in June hit a 17-month high.

Second quarter housing supply from 45 projects (not including public housing projects) came to a little over 12,000 apartments, down 50% from 2014. Sales were over 15,000 units. In July, there were about 3800 new homes; sales are 6400 units thus far.

There is real concern prices could start taking off.

iFeng: 京住宅成交创新高 供需不平衡房价或将上行

This next article says the second half will see a rate cut and two RRR cuts, quoting Zhu Haibin, chief China economist at J.P. Morgan.

iFeng: 下半年或迎一次降息两次降准 楼市或有大变

Less discussed are soaring rents. The apartment I was renting in Beijing was 2600 a month in 2011. I believe it is now over 4000 a month. That's not atypical for the area.

Central planners look smart when things are going well because the economy's natural momentum does most of the work. When balancing on a beam, or spinning a basketball on your finger, you use very little effort when in equilibrium. Once you start losing your balance, you get farther and farther out of equilibrium and must add more and more energy to return, or find a new equilibrium. Most of the time, the new equilibrium in on the floor, at rest.

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