Slowing Chinese Real Estate Prices a Big Risk to America
Friday, November 18th, 2011
By Michael Lombardi, MBA for Profit Confidential
Falling Chinese real estate prices are becoming a big concern…and the after-effect could reach America.
Sixty-six million people live in Beijing, Shanghai, Guangzhou and Shenzhen and these four big cities are seeing the price of homes softening. Chinese real estate prices could fall as much as 20% to 30% next year in these cities, according to a story in Beijing Business Today.
As you may recall, the Chinese government, fearing speculation in the Chinese real estate market, raised home down payment requirements and mortgage rates in April to cool the housing market. These steps may have gone too far, cooling the Chinese real estate market too quickly.
As China’s economy has grown so fast, as the country has become a big world-buyer of materials related to home building, materials companies have looked at exports to China as an offset to the pathetic American new home construction market.
The big fear is that a hard landing for the Chinese real estate market could mean a hard landing for the Chinese economy, the economic ramifications of which could be felt worldwide.
According to the Bureau of Economic Research, the gross domestic product (GDP) of the U.S. was about $14.7 trillion in 2010—that’s a 46% increase in our GDP since 2001. The GDP of China was $5.9 trillion in 2010—a 353% increase in China’s $1.3-trillion GDP of 2001.
Now here’s where it gets really interesting…
Back in 2001, the economy of the U.S. was 7.8 times bigger than China’s economy if we look at the GDP of both countries that year. Last year, the U.S. economy was only 1.7 times bigger than China’s economy, again according to GDP numbers. Our economy is simply growing slower as China’s economy grows faster. And American companies are becoming more and more reliant on demand for goods from China.
As China’s economy has grown so rapidly, be it the precious metals, infrastructure, or strategic non-Chinese companies—the Chinese have been busying either buying them or financing them, as the country remains focused on bringing its 1.3 billion people into either the working class or middle class. A pullback on Chinese real estate prices would slow the Chinese economy dramatically, possibly forcing China to pull back on foreign investment.
A slowdown in the Chinese real estate market would have severe global ramifications, possibly causing more damage to the U.S. economy than the eurozone crisis.
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
