Last week I mentioned that China’s Housing bubble is already worse than America and Japan’s respective bubbles.
Today the Wall Street Journal provides even more confirmation:
It’s impossible to say definitively that a market has strayed into bubble territory until after the collapse. But prices rising out of the reach of average buyers is one indicator. Housing prices in the U.S. peaked at 6.4 times average annual earnings this decade. In Beijing, the figure is 22 times.
The figures get even worse when you consider that the “shadow market” (i.e., banks making “off book” loans) means the bubble is even worse than it seems:
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.
Something that can’t go on forever won’t. That’s especially true of a housing boom in a country aging as rapidly as China (which Mark Steyn famously said “will get old before it gets rich”); and don’t forget that a rapidly aging populace was also a factor in Japan’s own “lost decade.”
The big question is whether China’s housing bubble or Europe’s Sovereign Debt Crisis pops first. The aftershocks of both will certainly be felt in our own economy…