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jayeff · 05-21-2005, 06:09 AM

It's odd to see a thread about property prices with no mention of China in it...

The US currently borrows about $2 billion a day to stay in business. 40% of those loans are currently held by China, Taiwan and Japan. China in particular is responsible for keeping mortgage rates in the US low, because doing so has kept the US as a major market for Chinese exports. The fly in the ointment is that China pegged its currency to the US dollar about 20 years ago and as a result its currency is grossly undervalued. China is under a lot of pressure - now even from the US itself - to correct that situation.

It's not a very smart idea to try to second-guess the Chinese. Asians generally think in terms of much longer timescales than westerners and there are several aspects of the Chinese economy which have existed for years despite the gurus claiming they are unsustainable. Yet trillions of dollars have been shifted out of the US economy over the last two or three years - notably funds from Arab countries, Japan and Russia - into China, in anticipation of a revaluation and as a reflection of fading confidence in the US. If/when the Chinese currency is revalued, it will have a major effect on the US economy and on the housing market in particular. Mortgage rates will rise sharply and new mortgages will be much harder to come by. This will have an across-the-board impact, although the effects will be strongest where prices have surged furthest.

Lots of people are writing as if everyone in the housing market is a speculator, but that is true of relatively few people. Most don't even benefit from increasing prices, because their new houses soak up all the "profit" they made on their old homes and then some. Many people take on mortgages they can barely afford when the market is climbing and that will mean a lot of foreclosures if the economy dips. Combine those "bargain" sales with people looking to sell to get out from under as mortgage rates rise, a shortage of mortages, etc., all combining to push prices downwards, and the "adjustments" could be very dramatic indeed.

05-21-2005, 06:09 AM
jayeff Confirmed User Join Date: May 2001 Posts: 2,944	It's odd to see a thread about property prices with no mention of China in it... The US currently borrows about $2 billion a day to stay in business. 40% of those loans are currently held by China, Taiwan and Japan. China in particular is responsible for keeping mortgage rates in the US low, because doing so has kept the US as a major market for Chinese exports. The fly in the ointment is that China pegged its currency to the US dollar about 20 years ago and as a result its currency is grossly undervalued. China is under a lot of pressure - now even from the US itself - to correct that situation. It's not a very smart idea to try to second-guess the Chinese. Asians generally think in terms of much longer timescales than westerners and there are several aspects of the Chinese economy which have existed for years despite the gurus claiming they are unsustainable. Yet trillions of dollars have been shifted out of the US economy over the last two or three years - notably funds from Arab countries, Japan and Russia - into China, in anticipation of a revaluation and as a reflection of fading confidence in the US. If/when the Chinese currency is revalued, it will have a major effect on the US economy and on the housing market in particular. Mortgage rates will rise sharply and new mortgages will be much harder to come by. This will have an across-the-board impact, although the effects will be strongest where prices have surged furthest. Lots of people are writing as if everyone in the housing market is a speculator, but that is true of relatively few people. Most don't even benefit from increasing prices, because their new houses soak up all the "profit" they made on their old homes and then some. Many people take on mortgages they can barely afford when the market is climbing and that will mean a lot of foreclosures if the economy dips. Combine those "bargain" sales with people looking to sell to get out from under as mortgage rates rise, a shortage of mortages, etc., all combining to push prices downwards, and the "adjustments" could be very dramatic indeed.