Stephen Roach says China’s Housing Boom is Not a Bubble; I say "Nonsense"

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In China, there are malls, even entire cities that are vacant. A huge percentage of units in China are held for appreciation, never lived in. Yet because there is “demand” for property, Roach claims there is no bubble.

Nonsense.

Ridiculously strong demand is a necessary requirement to produce a bubble. The second requirement is a price increase that exceed the ability of buyers to repay the loans or sell to the next “Greater Fool”.

In the US, home prices rose several standard deviations above rental prices and above wages. The same has happened in China. Thus, China’s property boom is in a bubble state.

Please consider 10 Signs of Speculative Mania in China and a followup article, Email from a Chinese on China’s Real Estate Bubble.

No one knows when willingness of buyers to pay absurd prices will change, but sentiment will change. Perhaps China’s property bubble will expand further, but bubble sentiment always pops by definition, and China is in an enormous bubble.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
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