Will China's version of QE replicate the miracle of U.S. housing prices rising for more than 10 years?

Lao Yang chatted about the room

2024-04-27 13:53Posted in Jiangxi Yiju Real Estate Research Institute, vice president of the real estate field creators

Recently, there has been a hot topic in the mainland's financial and economic circles: The central bank is going to go down and directly buy treasury bonds! Is it the final arrival of China's version of QE?

Recent information from the Ministry of Finance indicates that the time for the central bank to buy government bonds is approaching.

In fact, a similar formulation was already mentioned in last year's Central Financial Work Conference. The starting point is to enrich the monetary policy toolbox, coordinate fiscal and monetary policies, and manage liquidity.

Explain QE, or quantitative easing, monetizing the fiscal deficit.

In the past 20 years, it has been used in Japan, the United States, Europe, etc. The central bank's money is already very, very loose, the tools in the toolbox are gone, the interest rate has fallen to zero, or even negative interest rates, so if you want to stimulate and release water, the central bank will directly buy government bonds.

For example, at the end of 2008, the Fed lowered its benchmark interest rate (deposits) to a range of 0-0.25%, that is, close to zero interest rates, until a new round of interest rate hikes began in the fourth quarter of 2015.

Sometimes, central banks also buy significant assets that are not in the Treasury category. For example, the United States has three QEs after '08, in which in addition to the purchase of Treasury bonds, it also buys agency mortgage-backed securities, that is, MBS.

Because mortgages are generally secured by real estate, whether it is a commercial property or a residential property.

So is China's interest rate already zero? Is there no tool in the toolbox?

Not at all!

First of all, our current interest rate is still far from 0%, for example, our LPR, the loan rate is 3.45% for one year, and 3.95% for five years and above.

Of course, the deposit rate will be a little lower, but it is still far from 0%.

In addition, the central bank of the mainland has quite a lot of monetary policy tools. There is still room for us to cut the reserve requirement ratio and interest rates, and there is a lot of room for operation of tools such as medium-term lending facilities, reverse repo, supplementary mortgage loans, etc.

Therefore, the purchase of treasury bonds by the central bank of the mainland is very different from the situation in Europe, the United States, and Japan in those years! Therefore, it is difficult to call it the central version of QE.

So why is this tool being introduced?

The main thing is to further enrich the toolbox and diversify our monetary instruments, and there are two key points.

First, the mainland will issue special treasury bonds this year, especially starting in the second quarter, and the scale is still relatively large; the central bank can purchase treasury bonds through the open market, that is, the secondary market, to stabilize the bond market price and prevent the issuance of excessive treasury bonds from impacting the entire bond market, including enterprise bonds and local government bonds.

Buying Treasury bonds through central banks can lower long-term interest rates, especially for 10-year Treasuries or even longer. After the central bank buys it, it can keep the yield of government bonds at a certain level.

Second, when the central bank buys treasury bonds, it can also recover some ineffective liquidity. In the past few years, the mainland currency has actually been quite loose, but a large amount of water has been hoarded in the banking system and cannot be loaned, because the real economy, including the demand for personal housing loans, is relatively weak.

At present, commercial banks have a lot of loan resources, including reverse repo, medium-term lending facilities, and PSL, all of which are loans issued by the central bank to financial institutions.

The problem is that you can't get the money out! This results in ineffective operation of funds.

When the central bank comes forward to buy treasury bonds, it will inject liquidity into the realm of treasury bonds; after the treasury bonds are raised, they will be invested and spent, such as building major projects and dealing with important risks, so that funds can enter the real economy.

Printing money is monetary policy, and issuing treasury bonds is fiscal policy.

By buying treasury bonds by the central bank, a coordinated operation of monetary policy and fiscal policy has been formed, thereby improving the effectiveness of monetary policy to support economic recovery!

Just now, I mentioned that when the United States was QE, it purchased some institutional mortgage-backed securities, most of which belonged to real estate bonds, which also supported the development of the real estate industry in disguise, mainly to further reduce the interest rate of real estate loans and personal home loans.

In the future, the mainland can also refer to the practice of the United States, not only to buy treasury bonds, but also to buy some MBS, real estate financial products.

To be honest, after many reductions in personal mortgage interest rates, in fact, the preferential degree of mortgage interest rates in mainland China is not very high!

A simple comparison: from the fourth quarter of 2008 to the first quarter of 2010, the interest rate of the first home loan can be discounted by 7%, while the interest rate of the first home loan after the current discount is not even 9% off.

At present, our five-year LPR is 3.95%, and if we give a 7% discount, the interest rate can be reduced to 2.77%, which is basically the same as the operating loan interest rate.

If the mortgage interest rate falls to such a low level, it will be a huge benefit for the applicant who buys a house for an individual, especially the first home loan, and greatly reduces the interest cost of the personal mortgage.

On the other hand, it can also curb the undesirable phenomenon of illegal inflow of business loans into real estate. Many friends may feel that in the past year, they have often received calls to promote low-interest business loans.

Since there are a large number of business loans with interest rates below 3% in the society, and they can also be borrowed for up to 10 years/20 years, and the application threshold is very low.

So, why should buyers apply for a first home loan with an interest rate of about 3.75% and a second home loan with an interest rate of more than 4%?!

Lao Yang believes that the people who are still buying houses for their own use are the backbone of supporting China's economic recovery and the "backbone" of China's consumption, and the policy level should spare no effort to care for them and support them.

If we can't get a 7% discount, we must at least get an 8% discount......

Please raise your noble hands and like or retweet this article......

View original image 346K

• 

• 

• 

•