House of horrors
China’s real estate market is in a scary place. Prices have fallen and will continue to do so. Here’s how China got into this mess and what will happen next.
While the world’s economy has zigged, China’s has zagged. Most countries raised interest rates to battle high inflation. A move that many pundits figured would drag down the inflation rate and house prices but didn’t. Yet, China went in the opposite direction. They cut interest rates to battle deflation and stop house prices from falling. But it hasn’t worked. Consumer goods and house prices are still both on the way down. And China’s economy is about to undergo a long-term fundamental shift.
What is happening? Chinese real estate prices are tanking. According to data from the Bank for International Settlements (BIS), real house prices in China have fallen for the past three years. They’re down around where they were back in 2010. New house prices have also fallen. They fell 4.5% in nominal terms year-on-year in June, a faster fall than the 3.9% drop in the previous month and the 12th straight month of declines. That has made Chinese families poorer because two-thirds of households’ as…