China-Housing Market

China-Housing Market

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Introduction The recent meltdown of the U.S. housing market triggered a financial crisis that evolved into the worst recession since the Great Depression. Other mature countries such as Ireland and Spain also have suffered severe housing problems in the past few years. Those difficulties continue to be a drag on economic growth. In the United States, for example, the residential housing market is still seeking to recover to a steadier condition, and home prices have yet to return to their historical trajectory in many regions. The current “shadow inventory” of delinquent and foreclosed homes is taking time for the market to absorb, which impedes employment growth in construction and related sectors and thus overall economic growth. In contrast, China has weathered the global financial turmoil in much better shape. A $580-billion stimulus package in 2008 helped it prevent a sharp slowdown in economic growth. This action has been considered timely and effective by most observers. However, there also have been concerns that banks loosened their lending standards too much as a result of the huge stimulus, among other factors. This led to excessive lending to individual home purchasers and rapidly rising housing prices that, in turn, may eventually lead to an increase in nonperforming loans at financial institutions should those prices collapse. The result, if corrective actions prove insufficient, could be a banking crisis that might require a government bailout.

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