Blog #5: Home Prices in China may hurt Families. Chelsie Stinson 3/6/14 7:55pm

Summary

China’s outrages prices for houses has caused thousands of families their savings according to one rather large survey, including 28,000 households, which was taken last summer.  This has been an on-going issue with housing prices continuing to rise for more than 10 years now. In addition, the survey found that most of the assets were in the family homes with limited diversification in stocks, bonds, and other assets.  Two cities in China (Shanghai and Shenzhen) experienced a drop of 4.5% in stock markets this past week before coming to a stabilized low.  There has been  attempts by the government to slow down the paste of  real estate prices by demanding banks to get down payments of 30% +  on first homes,  while increasing the amount or eliminating mortgage entirely on additional homes.  According to an earlier editorial on this story “Chinese policy makers must take measures to prevent house prices from becoming a source of financial instability, and they should prepare as early as possible to deal with the social impact that falling home prices may exert.”  An interesting statistic found by the Southwestern university of Finance in Chengdu, China mentioned how China has 66% of assets found in homes versus the US with only 41%.   This trend we see has been a general a representation of the middle class population where homes are costing them all their money.  Also there seems to be a decline in urbanization in which large numbers of educated youth have migrated to more cities from their rural locations.

Analysis

Home prices rising has obviously left many in an overwhelming state of stress as they continue to struggle with paying off mortgage they currently owe. This becomes a very concerning issue as it brings about social instability since housing has become progressively unaffordable for the ordinary common people.  Low-income families are being outsourced as well as burdened with these cost and could eventually lead to an alarming amount being forced out of their homes if policies are not changed to accommodate for this Socioeconomic-class issue.  There is already a gap between the rich and poor existing but here is a prime example of how this gap will continue to grow further apart if it continues at this rate. Not only does this affect the rich-poor gap but also because there has been a trend of more people moving into larger cities such as Beijing and Shanghai, these cities have faced growing population issues such as the raise in the standard of living, puts higher demand on education, and job opportunities.  People in the cities have thus suffered and new comers will find it harder to even find a place to rent or even afford to rent.

 http://www.nytimes.com/2014/03/03/business/international/families-left-vulnerable-in-chinas-housing-market-study-finds.html

published in print March 3, 2014;  posted March 1, 2014