EO Asks: Is This the Housing Market Top? Flight From Currency, 1929 Parallel

An opinion article in the Economic Observer partially attributes the latest run-up in home prices to flight from the currency. Aside from that, the article is noteworthy because it says discussion of home prices is back at peak bubble levels. Additionally, this was the second most popular article on EO website today.

Discussing how Beijing's tightening policies have driven up prices 10 to 20 percent, and developers suddenly reluctant to sell property:
The reason, on the surface, is mainly because of the recent introduction of Beijing's land tightening policy, the market demand side worries future housing prices will rise again leading to panic buying. At a deeper level it reflects the consensus on the potential decline in purchasing power of the currency and the pressing demand for assets that can preserve value and appreciate. Residents would rather tighten their belts and live frugally, avoiding audacious consumption. From this point of view, no matter how much land supply there is in Beijing, it is not enough to satisfy demand.
Housing and home prices is always a major topic in China, but author thinks this time it has 1929 parallels:
Regardless if they are uncle or aunt, barber or waiter, talk about home prices and everyone is clear and logical, as if everyone investing in the property market investment is Warren Buffett. This is reminiscent of the eve of the 1929 Wall Street stock market crash, the story of Rockefeller and the shoe shine boy, and in 2007 and 2015, China's stock market rose sharply and everyone was trading stocks. Common sense says if everyone knows the price will rise, it indicates this is the crazy stage, the possibility of falling is far higher than the possibility of another rise. Of course, this is only looking at the emotional level, we also need careful analysis at the rational level.
Moving on to exchange rate and "price-to-earnings ratio" of assets:
But with the economic growth rate of the downlink, the RMB exchange rate and its pricing of asset prices can not match the previous high "price-earnings ratio", in accordance with the economic law in mid-2014 both should fall. But the renminbi is not freely convertible currency, so the foreign exchange reserves in the top one year after the "811 exchange reform" initiative to release the exchange rate risk an important measure, due to rush, including the stock market, including financial markets, including a series of chain reaction, the final Had to give up a one-time devaluation strategy, instead of indirect capital control through the slow depreciation of the gradual release of exchange rate risk. But this period due to the economic downturn facing the risk of stall, in 2015 we once again adopted a counter-cyclical easing of real estate policy, led directly to the exchange rate risk has not yet effectively released the background, the real estate bubble once again blown big, real estate " Price-earnings ratio "does not fall, and the bubble expansion is different from the past, driven mainly by the middle class adding leverage, which also includes" down payment "such as leveraged tool applications, and promote the basic principles of the stock market in 2015 the same. This point can be seen from the following data, in 2016 half of new loans were residential mortgages, and new home sales accounted for a rising proportion of M2 year after year, in 2016 new and existing home sales reached a record 100 percent of teh increase in M2.
Fan goes on to make the logical point that if asset values keep rising in China, the pressure on currency outflows will keep rising too:
As a result, the rapid rise in RMB asset prices and the slow depreciation of the RMB formed a significant departure from the capital control, the faster the price rise, the greater the depreciation of the renminbi is expected. It is like the pool to close the outlet at the same time open a large inlet, "water" put more assets from the "bubble", and the threshold appears in the reservoir filled the moment. In 2016 the academic community appeared similar to the "security or exchange rate", "exchange rate or save the storage" and the like discussion, in fact, this is only stay in the short-term tactical strategy choice only, the real strategic decision is how Improve the return on investment in society as a whole.
Finally, the behavior of speculators may point to a turning point:
Judging from the law of the property market, the market comprehensive interest rate is the most important factor affecting the rise in house prices. Therefore, since 2017 Beijing and Beijing, Tianjin and Hebei regional property market's contrarian rise is more due to fear of rising property prices causing panic buying, the hidden factor latent economic growth exceptions, very different from the high-level [govt] inhibition of asset bubble decision. To be focused on the release of demand, the steady increase in market interest rates will drive some early investment, speculative home buyers to sell housing, Shenzhen recently appeared a large number of real estate speculators to gradually sell housing cases, so the recent real estate speculation may indicate the property market The inflection point has arrived.

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