China's Housing Trouble Heats Up

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The Rude Awakening Tuesday, March 5, 2013 |0900 Hours China's Housing Trouble Heats Up "Housing slaves" and the beginning of the end? You can't regulate euphoria... Plus: A historic rally for the ages? Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner You've seen the ghost cities before. They stretch across the outskirts of dozens of major urban areas, criss-crossed by empty highways. The rows of modern skyscraper apartments are all sold to absent investors. There's little doubt these scenes create compelling television... But beyond, the gaudy, empty cities, China is now facing another property-related problem: housing slaves. Middle-class workers in China's major cities are reportedly shelling out upwards of 70% of their salaries for mortgage payments as they scramble to buy property in the face of rising prices. According to Bloomberg, the Chinese media has started to call them 'fang nu,' or housing slaves, "a reference to the lifetime of work needed to pay off their debts." Then there's the investor class. Nouveau riche Chinese investors have gobbled up properties despite attempts by the government to put a lid on the red-hot market. Just this week, China instituted large tax increases on home sellers. The government is also calling on local agencies to institute price controls. Yet no matter how much the government attempts to crack down on the housing market, it cannot suppress human emotions... China is showing signs that it is entering the final, blow-off stages of its real estate bubble. Analysts and developers are sounding the alarm--but it cannot deter euphoric investors who have never seen real estate values dramatically tumble since the government changed property ownership rules 15 years ago... Advance notice of this impending drop was on full display yesterday. The Shanghai Stock Exchange Property Index cratered nearly 10%. Stateside, the iShares Trust FTSE China 25 Index Fund and the SPDR S&P China ETF both dropped. All are recovering slightly today--but I would expect continued volatility moving forward. If you're betting on China through any of these positions, it's time to pound sand. The sheer scale of China's property binge and the telltale emotional topping signs are emerging everywhere you look. When it really begins to sour, the shockwaves could make our little experience with a runaway housing bubble here in the States appear mundane... Rude Numbers Targets, Predictions and Wild Guesses 1 green Monday is now on the books. For the first time in 2013, the S&P closed with gains on a Monday. Stocks finished the day up about 0.5%. However... $419 marked new 52-week lows for Apple yesterday afternoon, while... $822 and some change was enough to push shares of Google to new highs. 40 points separate the S&P 500 from its all-time highs. As of this morning, the index sits at 1,525... $1,582 is enough to buy an ounce of gold this morning. Rude Trends When to Buy... When to Sell "You talk of sell in May," says a numbers-minded reader. "Well, I'm looking at the number of days this rally has lasted. Starting at March 2009 until now is roughly 4 years or 1460 days. If I'm not mistaken that's in the neighborhood of historical all-time record rallies. Buy if you must." Well, let's go to the numbers and find out. Here are some stats from Barry Ritholtz's Big Picture blog: "The current rally that began in March 2009 is now 3.8 years old -- that is the average duration of bull markets since 1929. (The current Fed interventions are the obvious wild card). "I have noted repeatedly over the years how similar this cycle was to 1973-74. That rally went over 6 years before a serious 1980 recession and correction. This is not my forecast (I don't have one) but I would not be surprised if the current move is somewhat parallel to the post 73-74 rally." So there you go. We're at about an average length for a post-Great Depression cyclical bull market. In order to officially break the cycle, we would need to see a 20% drop. [Ed. Note: Follow me on Twitter: @GregGuenthner — E-mail me here: rude@agorafinancial.com] Ignore At Your Own Peril Today's Must-Read Links Finally Revealed: the Proven Wealth Secret of a Reclusive Vegan Fiscal "D-Day" set to hit as early as late July or early August of this year Shocking gas price prediction released... Do this before gas hits $8 a gallon Additional articles and commentary from The Daily Reckoning on: DR iPhone APP To end The Daily Reckoning’s Rude Awakening e-mail subscription and associated external offers sent from The Daily Reckoning and The Rude Awakening, cancel your free subscription here. 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