With a major property bust underway, China will not be a global leader in growth.
Bailouts will not help explains Michael Pettis at China Financial Markets.
Shifting Debt Doesn’t Solve Problems
- Good piece by Houze Song on why the property bailout plans being proposed in Zhengzhou and elsewhere are likely to fail. The authorities are simply shifting debt around rather than resolving it.
- I’d add that existence of large amounts of bad debt and overvalued assets means by definition that the recorded collective “wealth” of the system exceeds the real wealth. The gap between the two can be thought of as “bezzle”
- That means that “resolving” a debt problem isn’t a matter of shifting it around or extending liquidity. Ultimately it requires writing down the debt and allocating the associated loss, so that recorded wealth in the overall economy is reduced by the full amount of bezzle.
- In that process and for that reasons someone’s wealth must decline, whether workers, household savers, businesses, local governments, the central government, importers, or anyone else. That is why resolving debt is politically so difficult: someone must take the loss.
- Trying to resolve losses and debt in the property sector by shifting debt around from one entity to another without anyone having to take a loss can never be a solution. All it can do is extend the amount of time during which to resolve the problem.
Payback in the US
Payback in the US for extreme property valuations will come in the form of much lower growth going forward.
Existing-Home Sales Fall 5.9 Percent, Down Sixth Consecutive Month
Yesterday, I noted Existing-Home Sales Fall 5.9 Percent, Down Sixth Consecutive Month
Key Existing-Home Sales Points
- Existing-home sales fell for the sixth consecutive month to a seasonally adjusted annual rate of 4.81 million.
- Sales were down 5.9% from June and 20.2% from one year ago.
- The median existing-home sales price climbed 10.8% from one year ago to $403,800.
- The median price is down $10,000, however, from last month’s record high of $413,800.
- The inventory of unsold existing homes rose to 1.31 million by the end of July, or the equivalent of 3.3 months at the current monthly sales pace.
- The median existing-home price for all housing types in July was $403,800, up 10.8% from July 2021 ($364,600), as prices increased in all regions. This marks 125 consecutive months of year-over-year increases, the longest-running streak on record.
- Properties typically remained on the market for 14 days in July, the same as in June and down from 17 days in July 2021. The 14 days on market are the fewest since NAR began tracking it in May 2011. Eighty-two percent of homes sold in July 2022 were on the market for less than a month.
- First-time buyers were responsible for 29% of sales in July, down from 30% in June and also in July 2021.
- All-cash sales accounted for 24% of transactions in July, down from 25% in June, but up from 23% in July 2021.
- Individual investors or second-home buyers, who make up many cash sales, purchased 14% of homes in July, down from 16% in June and 15% in July 2021.
The details are instructive.
There were 125 consecutive months of year-over-year increases, the longest-running streak on record.
Case Shiller Home Prices
Housing Starts Drop 9.6 Percent, Now Below Pre-Pandemic Level, Led By Single Family
Also note Housing Starts Drop 9.6 Percent, Now Below Pre-Pandemic Level, Led By Single Family
Home prices will either crash or bleed slowly for a long time. A crash would be better.
Because the longer prices stay high, the weaker the housing market will be.
This is a problem of the Fed’s making.
Free money from Congress exacerbated the problem, but absurdly low interest rates by the Fed for over a decade created the housing bubble.
This post originated on MishTalk.Com.
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extending liquidity. Ultimately it requires writing down the debt and
allocating the associated loss, so that recorded wealth in the overall
economy is reduced by the full amount of bezzle.”
As Alan S. Blinder in his book “After the Music Stopped:
“Credit is a coward”.
“The clear indication is that when defaults are perceived as
more (or less) likely risk spreads will widen (or narrow).“ “The remarkable
widening of interest-rate spreads in 2008 was one of the most stunning and
worrisome features of the financial crisis.”
“How do you
know it’s a bubble?”
Alan S. Blinder
gives a convincing explanation:
(1) The historical
data should be long enough to give us an historical perspective.
“Using 120
years of historical home prices, the relative prices of houses in America
barely changed over more than a century! The average annual relative price
increase from 1890 to 1997 was just 0.09 of 1 percent. Then things changed
dramatically. According to the Case-Shiller index, real house prices soared by
an astounding 85 percent between 1997 and 2000—and then came crashing down to
earth from 2006 to 2012. This represented a large, long-lasting, and a sharp
deviation from fundamental value.” Pg. 32 “After the Music Stopped”
credit to generate the same inflation adjusted dollar amounts of gDp.
Cambridge, Cash-Balances equation, “Money, Credit and Commerce (London:
Macmillan, 1923), pp. 44-45
Where:
form of money is held
If K is expressed as a period of time, then K is the
reciprocal of V. K is the length of the period over whose transactions
purchasing power in the form of money is actually held.
Philipji.com 09 August 2019
September 2006. It’s been quite some time since I have commented on this blog. Now something
important has happened. For the first time since 2006 the growth in Corrected
Money Supply (my measure of money) has dipped below 0%. It first went below 0% in June 2018 (using the latest
figures from the St Louis Federal Bank web site. The data keep getting revised
for several months which is why my previous post did not capture the fall below
zero.) though it was above 0% in June 2019, the latest I am able to calculate.
to stay below until August 2007. The Great Recession began in December 2007. It
is to be seen if this time is any different.”