Monday, March 19, 2012
It's The Collateral Value, Stupid
When you lend, obviously residual collateral value affects your pricing and terms. Look at China's latest release on existing home sales price changes:
Wenzhou wins the prize with 10-15% price drops over the last year. Beijing is centered on 96% (4% price drop over the year). Nianjing is seeing the fallout in the smaller buildings, with over 5% price drops. Fuzhou is trying to chase Wenzhou down.
I would think the main effect of the falling prices in most cities would be to stop investment buying, but it would have to make homebuyers think a bit too. The effect is beginning to bleed through into pricing for newly-built buildings.
All real estate is local, and that's true for China - you can see very sharp differences between cities. This does not bode well for the economy. You can see that in some places it is buyers' exhaustion, and that in others it is a fall-off in business profits by looking at the different trends in pricing for differently-sized buildings.
Food and gold are still the outliers for retail price increases. I'm guessing that the rather large differential in price increases for gold and silver between urban/rural indicates that competition effect is taking over in the cities. It looks like an economic deceleration is picking up pace. The very restrained inflation in building supplies and materials probably means that building pace is slowing rapidly now. The "under construction" figures mean less than the pace of completions in coming months for the supply situation.