Business / Opinion

China's housing market not to crash: history revisited

(Xinhua) Updated: 2014-05-21 11:06

BEIJING - There is no shortage of prophets predicting doom for China's housing market, but the history of recent property bubbles gives precious little to support their creed.

There is no doubt that China's home market is losing steam. Growth in home prices slowed to a near one-year low. Investment, construction and sales have all slowed.

All this might be seen as adding weight to predictions that China will fall into the same old trap that caught the United States, Japan and Hong Kong. All three have seen property bubbles burst in the past couple of decades.

A closer look at the three cases might make cause those doom mongers to think again.

Housing bust, American style

It's no mystery. The housing bubble and bust in the US was a direct result of easy credit and loose government supervision of financial derivatives. Simple.

The bubble officially burst in 2006 and the housing market is still on the mend. Between 1995 and 2006, house prices nearly doubled. In 1999, The Department of Housing and Urban Development announced action to provide $2.4 trillion in mortgages for affordable housing. The Federal Reserve lowered federal funds from 6.5 percent in late 2000 to 1 percent in 2003, at a time when the housing supply was increasing rapidly.

And so housing boomed until 2006. Rates had moved back up to 5.25 percent which hit demand and increased monthly mortgage payments bringing a sharp correction: the subprime crisis. Prices tumbled about 33 percent between 2007 and 2010.

China's housing market bears some similarities to the US as the bubble was expanding. Average prices have more than doubled since 2003: in Beijing and Shanghai more than quadrupled.

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