Real Estate Rage is Back

The price was cut 22 percent and it triggered pissed off buyers who paid higher.

房价从1.8降价4千，泰州“华樾花园”交付维权pic.twitter.com/N88XQBLqdZ

— 财经数据库 (@caijingshujuku) August 31, 2023

I could not confirm via news, although a search for the city and project did turn up listings at the 18,000 yuan/sq ft price. This type of news would get covered years ago. I don't know for certain, but suspect this will run afoul of the new guidelines. In that case, take everything with a bit of salt until you see some confirmation because there are anti-CCP forces in the West that hype this type of news, show old videos claiming it is new and so on. I am fairly confident this is real because a busy season is coming in late September as both Mid-Autumn Festival and the Golden Week align. It would make sense for some developers to try discounts now to beat what all signs say will be a disappointing season.

Here is a post from 2019 speculating on this very timing: Will Real Estate Rage Return in 2019? Developers Slashing Home Prices Ahead of Mid-Autumn and National Day

Here's a protest from 2014. Link is dead now unfortunately, but I grabbed a picture: Real Estate Rage in Wuxi

Here's 2014, when it looked like the bubble might finally burst. Everything has been pushed back a decade and made far, far worse if this is indeed the bust: China Real Estate Rage Is Back; Ghost Cities Everywhere; Offshore Yuan Plunges; Talk of Falling Real Estate Prices Across China

This was my first real estate rage post from 2011. Home buyers in Shanghai angry at massive price drops, smash offices

More than a decade of this behavior thanks to the housing bubble requiring ever higher prices, insanely unaffodrable homes and developers need to move inventory to meet debt payments. Incredible to me that they did not deal with this in the interim. Instead here we are with the world economy holding its breath. Or at least, those in the world who are paying attention. Judging by the Nasdaq and social media, most of the U.S. doesn't care.

The Case for Deflation

The market is in a curious state with some sectors such as oil and oil serivces hinting at bullish breakouts and bonds hinting at bearish breakdowns. How about the contrary? The charts say the market isn't far from deflation either. If crude reverses, the outlook for inflation dims fairly quickly. I'm not going into monetary data in this post, only looking at some assets that should be doing well if inflation, specifically commodities prices, move higher.

Crude oil is about $10 away from a clear bullish breakout, but it is battling at a resistance area. It is $20+ away from a major bearish breakdown.

Rio Tinto has a potential measued move to $100 or its done and topping.

Freeport-McMoRan has what looks like a diamond pattern to me. Moves out of diamonds are often huge, powerful moves.

Emerging markets, of which China is the main component, are less than 10 percent from major support.

Copper is already well into a rollover and it leads oil.

Not enough to call it a serious break yet, but EURUSD went through support on Friday. The euro is keeping the U.S. Dollar Index in a bearish pattern.

East Asian currencies are rolling over. It won't take much of a push open a retest of the dollar's 2022 highs. An extension of the current dollar rally into Monday might be enough, as it would be enough to carry EURUSD below support...

Of Australia, Brazil and South Africa's stock markets and currencies, only Brazil's currency looks strong. You'd think it would be more than 1 out of 6 if a commodities bull run is coming.

Gold has a bullish look to it, but it often falls in the first part of deflationary waves. A pullback towards ther $1550 to $1600 area might be the buy of a generation if secular disinflation and the 40-year bond bull market have ended.

I've been focused on rising home prices and affordability, but I didn't pay close enough attention to the 2006 top. The Case-Schiller Index spent about 13 months topping (the low between the two tops broke in April 2007, after the initial March 2006 peak) with a double-top pattern. A precisely similar top in time would see home prices implode this month because Black Knight has said, and the trend in Case-Schiller, points to a new high in July. Case-Schiller will report August data in October. Analogs need not be precise though. As long as prices sink in the autumn, it'll be a very similar top. The prior top was followed by a 50 percent decline.

Troubles in China: Developers Going Down, Province Needs a Bailout

Here we are again, at the starting line for a crisis: Chinese Developers Going Down Like Dominoes

Chinese Real Estate Digs for Hope

Qiushi 求是 is the Chinese communist party's internal and external magazine.

Its goal is to "to publicize the governing philosophy of the CPC" with content that reports on political, economic, cultural and social issues, while providing analysis of world politics and China’s foreign relations". About 60% of its articles are written by political leaders.

In late February, Qiushi published part of a speech written by Xi Jinping in which he discussed the need for stable real estate growth along with repeating the line that "houses are for living in, not speculation on." As a result, hopes for a floodgate of easy money and regulatory policy evaporated. Since then however, the industry found a new hope: China's 5 percent GDP target for 2023. In a nutshell,

On the other hand, the main expected goal of this year's development is to increase the GDP by about 5%. Li Yujia said that this means that real estate at least cannot form a drag. To boost economic growth, real estate needs to perform well in investment, construction, and consumption this year.

iFeng: 房地产重磅！中央最新定调，关键信号来了

The Ride Never Ends: China to Inflate Housing Again

It seems like the world is out of ideas.

iFeng: 楼市重磅！央行、银保监会：新房价格连降3个月，可放宽首套房贷利率下限

Reuters: China property shares firm on more policy support, easing curbs

The central bank said on Thursday that for cities where the selling prices of new homes fall month-on-month and year-on-year for three consecutive months, the floor on mortgage rates can be lowered or abolished for first-time home buyers in phases.

China is also planning to relax restrictions on borrowing for property developers by dialing back the "three red lines" policy, Bloomberg News reported on Friday.

The property sector, which accounts for a quarter of China's economy

Interest Rates Still Far Too Low

Asset prices are way, way too high. Most of the inflation went into asset prices, not consumer prices.

Canadian Banks

EWC is the Canada ETF. Banks have been outperforming in recent years. In relative terms, RY has done best compared to EWC. CM is the most exposed to the housing market.

Here is residential home prices and RY on the same chart. Prices are down 20 percent from the February 2021 peak. Interesting that it peaked at the same time as ARKK and other speculative stocks.

Housing Affordability Implodes in the USA

This is a larger bubble than at the peak in 2006. This is only through July when mortgage rates were much lower. The number I am most focused on is the qualifying income. In 2019, a household making $50,000 could qualify for a mortgage with conservative criteria: 20 percent down payment and 25 percent of gross income for monthly housing expense. That number was above $89,000 in July. My sense is mortgage rates have gone up faster than homes have decline, but even if not, this number probably hasn't dropped much.

Wages could go up 78 percent...except the Federal Reserve doesn't want wage inflation. If the bond bull market is over, the only way to square this equation is with massive declines in home prices.

Bonds Away: 30-Year Mortgage Running to 7pc

The bounce in bonds may happen, but it'll be about 6 percent lower.

I don't know that it will get there, but the path to 7 percent on the 30-year mortgage is opening up. Going by the current ratio of mortgage rates to the 30-year treasury rate, if ZB hits the target it could push mortgage rates towards 8 percent. the X-factor here is the Federal Reserve's QT policy.

The S&P 500 Index bounced of resistance. There isn't much chance of a bounce with bonds sinking and there's not much risk except for the Federal Reserve tomorrow. Most likely the path forward is bearish immediately, but if the Fed front-loads hikes perhaps bad news is good news.

Microsoft and Google both traded at new 52-week lows the past couple of days. Didn't close at new lows.

What is Left Unsaid

The top story in the finance section at iFeng is...America's mortgage rates. Housing is of great interest to Chinese.

iFeng: 美国房贷利率创14年新高！刚需负担一年翻倍

As the Federal Reserve continues to raise interest rates violently, U.S. mortgage interest rates continue to soar, more than doubling in a year.

The average rate on a 30-year fixed mortgage in the U.S. has topped 6 percent this week, the highest level since 2008.

The average interest rate on 30-year fixed mortgages climbed to 6.02% this week, up from 5.89% last week, a survey of lenders released by US home mortgage finance giant Freddie Mac showed on the 15th. 2.86% a year ago. On the other hand, despite weakening demand amid high interest rates, U.S. home prices are still running high, with the average home now just under $370,000, still higher than a year ago.

Another top headline (below the above) is about how the Chinese housing market could be rebounding because the sales drop has narrowed for three months.

iFeng: 房地产多个指标回升！销售额降幅连续3个月收窄，房企资金状况有改善

Two real estate bubbles ready to burst in the two largest economies in the world.

Evergrande Can't Produce Financial Report On Time

Evergrande unit Hengda unable to publish financial results by Aug 31

Property developer China Evergrande Group's 3333.HK main unit said on Wednesday that it was unable to disclose its six-month financial report by Aug. 31 because significant changes in its operation had added extra auditing work.

Hengda Real Estate Group Co, the developer's flagship onshore unit, also promised to publish its 2021 annual report as soon as possible, it said in a filing to the Shenzhen Stock Exchange.

In August Hong Kong's audit regulator initiated an inquiry into the financial statements of China Evergrande's property services unit and its former auditor after questions were raised following an investigation into seized deposits worth $2 billion.

Chinese Real Estate is Done

China will have to find a new growth engine. They don't have one lined up.

No More Growth for China’s Real Estate

Chinese Govt to Shore Up Domestic Bond Market

STCN: 监管推进有担保发债试点 房地产股债大涨

On August 16, it was rumored that the regulator held a closed-door meeting with some developers, and planned to designate state-owned enterprises to guarantee and underwrite demonstration housing companies to issue bonds to provide liquidity support for housing companies.

A number of real estate companies and people in the capital market confirmed the authenticity of the news to the Economic Observer Network. However, given that the bond market has been extremely sensitive recently, and the pilot has not really been implemented, the possibility of variables cannot be ruled out. Therefore, the regulators hope to participate in To keep a low profile.

Marketwatch: Chinese property stocks rally on reports of government bond issue

Chinese regulators have reportedly ordered state-owned China Bond Insurance Co. Ltd to guarantee onshore bond issuances to a number of developers in the struggling sector, according to Reuters.

Stock prices in the named shortlist bounced up in response to the news, with Hong-Kong-listed shares in property developer Country Garden Holdings up as much as 18% to 2.74 Hong Kong dollars early in the trading day and pared its gains later on Tuesday to a 9% rise

Shares of Gemdale Properties rose 5% while investors snapped up shares in Longfor Properties which reached highs of HK$26.40, a rise of almost 19%, and CIFI Holdings which rallied 12.9% to HK$2.22.

China Bond Insurance Co provides financial guarantee services and will provide “full amount, unconditional and irrevocable joint liability guarantee” to the medium-term notes for a number of developers, according to the Reuters sources.

CPI Propped Up by Lagging Housing Data

Back in June I posted Vertical Home Price Move Ending. Shelter is 32 percent of the CPI. Owner's equivalent rent (OER), a fabrication created by the BLS to replace home prices, is 23 percent of the CPI or 72 percent of the shelter component. Since shelter was up 0.5 percent in July, it was 0.16 percent of the CPI reading. Home prices peaked in May though and have begun falling. Eventually, OER will slide as well, but it could still take some time.

No Surprise: Foreign Bondholders Lose First in China

Bloomberg: One of the Decade's Hottest Bond Markets Is Imploding in China

When investor demand for Chinese property debt was approaching its peak back in 2018, a banker could pull together the makings of a multi-million dollar deal during a Saturday boat trip around Hong Kong’s harbor and barely look up from her drink while doing it.

Now, the $203 billion market—which once yielded several deals a week and padded portfolios across the world from Pimco to UBS—is all but dead. And offshore investors are swallowing almost all of the losses.

I remember writing something about this specifically...oh yeah: China Will Nuke Foreign Investors From Orbit

Shenzhen Will Buy Back Homes If Prices Fall

Tencent: 罕见！深圳推出共有房，房价跌了企业保底

In order to make young people feel more at ease to buy a house, Shenzhen has launched a "shared housing plan for young talents". Young people who meet the requirements can buy a house at half price. After 3 years, when the house price rises, they can buy the other half of the property at the original price. If the house price falls, the company will guarantee the original price. If the home price falls, they will buy back the homebuyers's half.

...It is understood that the plan was jointly issued by Shenzhen Enterprise Human Resources Development Promotion Association and Shenzhen Anjiajian Industrial Development Co., Ltd., and will open 50 sets of industrial apartments in Baoan District, Shenzhen to young talents who meet the standards. It is expected to be completed by the end of this year.

This should be seen in the context of the "war for talent" in China. There aren't enough young people and fewer talented young people to meet demand. I'm not saying this plan is a good idea, but it should be viewed in context of cities paying bonuses to attract human capital. Contrast with the U.S. where the Federal Reserve and USG funnel cash to scum outfits like Blackrock who buy up homes and price young people out of homeownership.

Homebuyers Not Paying for Unfinished Homes, How Bad is China's Real Estate Market?

For more than a decade, the death of the Chinese real estate has been greatly exaggerated in the past. How about now?

ZH: "The Damage Could Be Huge": Chinese Banks Tumble, Swept Up In Mortgage Nonpayment Scandal As Borrowers Revolt

China Central Television said on its WeChat page that the regulator will guide financial institutions to participate in risk disposals based on market conditions, after researcher China Real Estate Information Corp. reported that home buyers had stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, spurring concerns that the quality of home loans is in rapid decline and could culminate in a 2007-like credit/housing bubble blow up.

Still, as Bloomberg Markets Live reporter Ye Xie writes, the grassroots movement of Chinese homebuyers boycotting mortgage payments isn’t exactly akin to the US subprime crisis of 2008. That said, no matter what Beijing does to address the latest chapter in China’s housing crisis drama, banks are likely to share the burden.

In the wake of a surging number of homebuyers who refuse to pay mortgages on construction projects that have stalled, China’s banking regulators said Thursday that they are coordinating with other agencies to support local governments in working to ensure the delivery of housing units. Separately, Bloomberg reported that policy makers held emergency meetings with banks to discuss the issue amid concern that it may worsen.

The boycotts raise the risk of mortgage defaults, a new set of troubles for banks that are already squeezed by exposure to ailing property developers. Mortgages make up almost 20% of total bank loans outstanding, amounting to about 39 trillion yuan ($5.8 trillion).

More at the link. It is serious enough that real estate professionals have started calling for a ban on pre-sales.

iFeng: 是否应当适时取消商品房预售制度，改为现房销售？

In the long run, the general abolition of the pre-sale system of commercial housing is the general trend. On the one hand, the pre-sale system naturally has many risks. For example, under the pre-sale system, once the capital chain of real estate development enterprises breaks, the project will not be carried out normally, resulting in a bad situation. The end of the building will damage the interests of the buyers; the buyers have paid all the house prices in advance by paying the down payment and bank mortgage loans, and assumed almost all the risks of the purchased houses in the future; the pre-sale system can ease the pressure on project development funds, extremely The development threshold has been greatly lowered, resulting in inefficient and disorderly competition in the industry; there are risks such as illegal sales and unfair transactions. Only by canceling the pre-sale system of commercial housing can we completely eliminate these risks, ensure the stable, healthy and long-term development of the real estate industry, and protect the interests of the people.

The pre-sale of commercial housing first appeared in Hong Kong and the pre-sale system of commercial housing in Hong Kong is called "sell off-the-plan". Due to the rapid population growth in Hong Kong at that time, there was a serious shortage of housing, and the Hong Kong government and developers had insufficient liquidity. On the one hand, this new sales method could raise construction funds for housing developers in a timely manner, and on the other hand It allows buyers to enjoy certain discounts on the purchase price, adapting to the capital situation and market needs at that time, making this model develop rapidly in Hong Kong and later spread to mainland China. In my country, the "Urban Real Estate Administration Law" in 1994 and the subsequent "Urban Real Estate Management Regulations", "Administrative Measures for the Advance Sale of Commercial Houses" and other legal documents clearly stipulated the pre-sale system of commercial houses. This new house sales method is widely used and has been It has become one of the core management systems for the operation of China's commercial housing market, and is the main mode of new housing transactions in my country.

There are a lot of back and forth arguments in the Chinese press, between those who say it helps homebuyers and those who want it banned because of the risk. My sense is it only makes homebuying affordable when there is a bubble, such that waiting 2 years for the finished home (or longer) results in a cost 20-50 percent higher. Yet, the pre-buy system fuels the bubble. Seems simple to me, probably also to the CCP.

iFeng: 防范延期交房，西安率先出手！沧州提出“购房款不进入监管账号合同无效”

On July 14, in order to effectively prevent the delayed delivery of commercial housing, five departments including Xi'an Housing and Urban-rural Development Bureau jointly issued 13 measures, including ensuring the compliance of land purchase funds, monitoring the whole process of project construction, and fully accounting for pre-sale funds. , strict payment standards, consolidate bank responsibilities, improve real estate credit management, etc.

In addition, Cangzhou, Hebei Province recently issued the "Cangzhou City Commercial Housing Pre-sale Fund Supervision Measures" (draft for comments), which clearly stated that all pre-sale funds of commercial housing should be deposited into the supervision account. After the supervision account is established, it must be noted in the commercial housing sales contract Ming: "The purchase price does not enter the supervision account, this contract is invalid, and the buyer and seller can cancel it at any time".

Industry insiders believe that the Xi'an policy is the first policy in the country aimed at delayed delivery of houses, which has released a very strong signal meaning. Its core content is to strengthen the supervision of pre-sale funds, and at the same time, strictly control the aggressive behavior of real estate companies from the land purchase process to prevent real estate companies from illegally acquiring land and creating risks; the establishment of a "one project, one file" system has a binding effect on the operation of real estate; The standardization and management of pre-sale work can help prevent illegal real estate from entering the real estate market, resulting in the transmission of risks to home buyers.

The Paper: 取消商品房预售制，该进入实操层面了

Recently, a number of property owners announced the suspension of loan repayment due to the delayed delivery of the property, which has attracted widespread attention. A number of banks issued announcements in response, saying that the scale and proportion of personal housing loans involved in risky real estate are relatively small, and the overall risk is controllable. The person in charge of the relevant department of the China Banking and Insurance Regulatory Commission said yesterday that they will guide financial institutions to participate in risk disposal in a market-oriented manner, and support local governments to actively promote the work of "guaranteeing the delivery of buildings, protecting people's livelihood, and maintaining stability".

With the intervention of many parties, I believe that the loan suspension crisis will be resolved in a benign direction.

The delivery of off-plan houses bought by home buyers has been delayed, or even completely unfinished, so that they must take the risk of sacrificing personal credit to protect their rights. This sympathetic experience has led many people to target the root cause of the unfinished business - the pre-sale system of commercial housing. For a time, the voice of "cancelling the pre-sale system of commercial housing" resurfaced.

The atmosphere is all set here, cancel the pre-sale system of commercial housing, is it time to enter the practical level?

Conclusion: China's real estate market has developed to where sale of only finished construction should be allowed.

Homebuyers refuse to pay mortgages on undelivered homes cannot be divorced from China's lockdown policy. Real estate in China is always a potential trigger for a crisis, but this pre-sale issue doesn't look like a crisis by itself. If the lockdowns trigger a crisis, it will emerge from somewhere else, or from a build-up of many smaller issues such as this one.

Canadian Skanks

They took the plunge today. These were second-half trades I was saving for later. Hopefully a bounce for a good entry in late August or early September. CM is my top taregt for a housing bust, probably guaranteed if the central banker comments below are put into policy.

Chinese Stop Paying for Unfinished Homes

The lunacy that was China's housing market is coming to an end, or so it seems. With so many rabbits pulled out of hats, one is always wary of one more can kick.

Not satisfied with paying up for newly constructed homes, for years Chinese have paid up for future construction, sometimes years away. They take on mortgages. Some "ponzi" builders finance construction of new units from presales of apartments further into the future. That system is now crashing as homebuyers refuse to pay for homes that have not been built yet.

ZH: China On Verge Of Violent Debt Jubilee As "Disgruntled" Homebuyers Refuse To Pay Their Mortgage

According to researcher China Real Estate Information, homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group Inc. analysts including Shujin Chen.

Analysts believe that a drop in home values may be another driver for the refusal to meet mortgage payments. “Investors are concerned about the spread of mortgage payment snubs to buyers, simply due to lower property prices, and the impact on property sales,” Chen wrote.

Homebuyers effectively have an option to buy a home and if they refuse to pay for that option because the price plunges, construction will halt or never begin. Eventually, any system pulling demand forward like the Chinese housing market will run into a blow up. See Here We Go Again, Again: China's Housing Market Freezes for a bunch of links to prior coverage of similar situations over the past decade.

Open Borders Killing the American Family, Driving Homelessness Higher

Housing takes years to plan for. When a government opens the borders to massive migration, it is placing extreme stress on the existing housing stock. Soaring rents, soaring home prices and soaring homelessness are a direct result of this policy. Inflation is exacerbating a problem that at its heart is being caused by the Baizuo admin's immigration policies.

From Australia. MacroBusiness: Immigration ramp-up will turn rental crisis into catastrophe

“Rental competition is tough at the moment”…

“The number of properties available for rent has fallen to historically low levels and demand to rent is up, particularly in the capital cities, with Covid-normal underway and the borders having reopened”…

“A return of migration and an imminent rebound in the international student market will continue to add to rental pressures, further shrinking the supply of available properties.”

Leith van Onselen comments,

All indicators coming from the Albanese Government suggests it will ramp-up immigration aggressively. It plans to use September’s jobs summit, which will be dominated by immigration lobbyists, as a Trojan Horse to gain ‘consensus’ for the biggest ever migrant intake.

Anybody lobbying to increase immigration needs to answer the following question: where will the hundreds of thousands of new migrants live when there is already an extreme shortage of homes for the existing resident population?

As usual, the many costs of extreme immigration are never considered by the ‘Big Australia’ lobby nor policy makers.

Australia is a microcosm of the USA. The U.S. is in worse shape because it is also allowing in terrorists, murderers, rapists, drug traffickers, sex traffickers and assorted ne'er-do-wells.