To add to the research on analyzing housing prices by Disposable Income (see my previous post for US, UK, Canada, Australia analysis), we now get a look at China. As you might have heard, there is a lot of talk in the business press about a bubble in China, specifically real-estate.
Check out the China chart:
Check out the China chart:
From Political Calculations:
We see that a very close coupling from 1999 through 2003. However, in 2003 a deviation from the established trend occurred and a new linear trajectory emerged, which continued through 2007.
That tells us is that something happened, most likely in late 2003, to set housing prices on a higher growth rate trajectory. Since that new trajectory is linear, we surmise a change in overall economic conditions, which suggests that China's housing market was not in a bubble.
That observation is contradicted by what we see next. In 2008, housing prices plunged while average disposable incomes were barely changed. This outcome suggests that a bubble indeed existed in the Chinese housing market from 2003 through 2008.
Finally, in 2009, we see both housing prices and disposable incomes surging upward, as the Chinese economy responded to its government's massive stimulus programs initiated in reaction to the worldwide economic crisis of 2008.
What we would hypothesize from these observations is that whatever bubble exists in China extends far beyond the nation's housing market, which has actually responded rationally to those conditions. We would then conclude is that what China has really dealing with is an economic bubble that extends across many sectors of its economy. We also find that the rapid resurgence of housing prices in 2009 suggests that China may now have formed a true housing bubble in addition to its overall economic bubble.
Like all economic bubbles, they will end. It's just a matter of when and how.
We see that a very close coupling from 1999 through 2003. However, in 2003 a deviation from the established trend occurred and a new linear trajectory emerged, which continued through 2007.
That tells us is that something happened, most likely in late 2003, to set housing prices on a higher growth rate trajectory. Since that new trajectory is linear, we surmise a change in overall economic conditions, which suggests that China's housing market was not in a bubble.
That observation is contradicted by what we see next. In 2008, housing prices plunged while average disposable incomes were barely changed. This outcome suggests that a bubble indeed existed in the Chinese housing market from 2003 through 2008.
Finally, in 2009, we see both housing prices and disposable incomes surging upward, as the Chinese economy responded to its government's massive stimulus programs initiated in reaction to the worldwide economic crisis of 2008.
What we would hypothesize from these observations is that whatever bubble exists in China extends far beyond the nation's housing market, which has actually responded rationally to those conditions. We would then conclude is that what China has really dealing with is an economic bubble that extends across many sectors of its economy. We also find that the rapid resurgence of housing prices in 2009 suggests that China may now have formed a true housing bubble in addition to its overall economic bubble.
Like all economic bubbles, they will end. It's just a matter of when and how.
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