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  • 2 Black Swans That Could Crush The Housing Market [View article]
    The Chinese government policies that have created the oversupply of housing are motivated by the desire to avoid the sort of political upheaval that could result in a change of leadership, and have less to do with economic objectives. China is basically two societies: in the interior, 900MM people live like pre-industrial peasants; and, on the eastern seabird, 400MM people live like Europeans. A significant portion of the people in their 20's and 30's among the 900MM are migrating to the seaboard to try and improve their circumstances, support the parents and kids back home, etc. The government's survival depends on its ability to accommodate this migration. Inducing production and warehousing of housing is a tool to this end. To wit, the China housing bubble - and, there certainly is one - is not a good analog to U.S. housing production or pricing behavior.
    Mar 14, 2014. 02:36 PM | Likes Like |Link to Comment
  • 2 Black Swans That Could Crush The Housing Market [View article]
    Two extremely significant drivers of home appreciation were overlooked in the otherwise excellent comment from Mike Holt: in the period of greatest price appreciation, the typical U.S. borrower household morphed from single-earner to dual earner; and the back-end underwriting ratios (all credit obligations as a percentage of income) were significantly liberalized from mid-30's to low to mid 40's. This had the consequence of more (albeit devalued) dollars chasing the nearly stagnant supply, and naturally nominal prices dramatically increased. Unless we expect dual income households to morph into 3- and 4-earner households, and back-end ratios to migrate from low 40-s to mid 50's, we cannot expect home prices to resume the previous appreciation trend on a percentage basis.
    Mar 13, 2014. 01:29 PM | 4 Likes Like |Link to Comment