Chinaโs Housing Market Woes Trigger US Real Estate Concerns
The process of buying a new construction home has some complications. First, you get a construction loan the general contractor can draw from until itโs complete and then convert it over to a mortgage once you get the certificate of occupancy. Fortunately, the mortgage department at your local bank or credit union makes the process much easier. Thatโs not the case in the Chinese housing market, and itโs causing real headaches.
In China, you start paying your mortgage while the home is under construction. You have the burden of a house payment without having a house to live in. Potentially, you could be paying for two residencesโthe one you live in and the one youโre building.
Living in China, itโs part of the way residential new construction works, and the Chinese people have learned to live with it. It worksโฆ until it doesnโt.
According to a Bloomberg report, developers in the Chinese housing market lost at least $90 billion in stocks and dollar bonds over the last year. With developers defaulting on their debts, some have stopped construction on partially-built homes. That combines with real estate values that have moved sharply down over the last 11 months.
As you can imagine, paying a mortgage on a house that is no longer progressing with no confidence it will ever be finished isnโt sitting too well with the people affected. Even if it does get finished, thereโs a good chance the home is going to be worth less than you paid for it before you ever step foot inside.
According to Michael Whittaker of the Daily Wire, โThousands of homebuyers are refusing to pay mortgages on unfinished properties in aย mortgage boycottย that has spread to nearly 100 cities and has affected over 320 development projects.โ
Publically, Chinese officials are saying that any โrescue effortsโ they make will prioritize homeowners rather than developers, signaling that China may be willing to let the developers fail. Thereโs no word of what those efforts might be, though.
Why Do We Care?
There are a lot more factors playing into whatโs going on and we encourage you to click those links above and check out our source articles. For the scope of our report, weโre more concerned with that fact that this is happening and what effects it might have on our own housing market.
Aside from the fact that this is a real issue affecting real human beings and their families, China is a major player in the global economy. What happens there has effects on other markets, including the United States.
With our own real estate prices starting to slide past their peak, thereโs concern that Chinaโs issues will have a cascading effect that starts a real estate crash here. There have been warnings for months about record-high prices, supply chain issues, resource shortages, and how the Fedโs attempts to create an inflation โsoft landingโ might play in.
Our crystal ball is foggy and we donโt know all the answers. However, the housing market situation in China bears monitoring as anxious homebuyers wait for lower pricing and home sellers try to take advantage of elevated prices.
