A friend asked Xiao lou if it was a good time to buy a house, because a friend of his told him that the current strict regulatory policy is not good for real estate, so after half a year, real estate will plummet, and then at that time, it will be the bottom.
For this argument, Xiao Lou wants to ask if the house price falls, will you still buy it?
There are some economic common sense, we all know that the economy is cyclical, from recovery, prosperity, recession, depression to continuous cycle. This is a law of expansion and contraction that arises spontaneously in the market economy.
Real estate also shows a cyclical nature with the contradiction between supply and demand. So there is no market that will always rise and will not fall.
There is a movie set in the US subprime mortgage crisis that can be seen, "The Ultimatum of The Merchant Sea", also translated as "Storm of Interests".
It tells the story of the choices made by an investment bank from analysts to directors to CEO chairman on the eve of the 2008 subprime mortgage crisis based on personal interests.
The themes that this film tells us are not new, that no snowflake under the avalanche is innocent.
We're not writing film reviews, we're still looking at real estate through this movie.
The U.S. subprime mortgage crisis was a financial tsunami triggered by subprime mortgage lending.
In order to stimulate economic growth, the United States opened an economic policy based on printing money and developing real estate, and issued mortgage loans with higher interest rates to people with insufficient credit, which is partly subprime mortgage loans.
U.S. mortgage issuers such as Freddie Mac and Fannie Mae were reluctant to slowly recover the principal and interest of their mortgages for decades, so they securitized mortgage loans, which is MBS (Mortage-Banked Security). MBS was first born in the 1960s, is the earliest asset securitization variety, mainly by the United States housing professional banks and savings institutions to use the housing mortgage loans they lent, issued an asset securitization commodity.
The more popular understanding of this kind of subprime loan is that after the mortgage bank issues loans to people with poor credit, it does not want to put this time bomb in its own hands, these mortgage issuing institutions themselves have the endorsement of government credit, so these subprime loans are packaged together with superior loans to use bonds and derivatives to make high-leverage structural products, and are sold to funds, insurance companies, and foreign institutional investors.
For a period of time, U.S. house prices have been rising, and there is basically no sign of falling. Subprime mortgage securities were amplified as a high-yield product, and the assets formed reached $600 trillion.
Since 2006, the US mortgage interest rate has been raised from 1% to about 6%, many subprime lenders have chosen to cut off supply because of the pressure of repayment, and banks have received a large number of houses that need to be sold, resulting in a decline in house prices, and causing more people to default on supply, causing a larger-scale decline in house prices.
Subprime mortgage securities are based on rising house prices and the credit endorsement of the US government, although the pressure mechanism for falling house prices is designed, but just like the property analysis model mentioned in the movie, there are huge loopholes, and the leveraged subprime mortgage securities, as long as they fall by 25%, will make the loss exceed the market value of the whole company.
So the first to escape the top triggered a market rush to sell, Freddie Mac, Fannie Mae, Lehman Brothers bankruptcy, AIG, Merrill Lynch securities suffered heavy losses, of which AIG as the largest insurance company in the United States on the verge of collapse, by the U.S. government authorized the New York Federal Reserve Bank to borrow $85 billion to AIG to survive the difficulties.
On the surface, the subprime mortgage crisis has been 5 years, but in fact, the subprime mortgage crisis has not yet passed the dangerous period, the maturity of subprime loans is mostly 30 years, and the size of the entire subprime debt and derivatives in the United States is 12 trillion US dollars, and now only 500 billion US dollars have been written off, less than 1/20.
Economic development needs to be stimulated by bubbles, but bubbles have their own pressure values.
When the market buys something it can't afford itself, something will go wrong. In the financial game of gambling on rising house prices, you know that the real estate bubble is there, but you don't know what effect the burst of the real estate bubble will affect you.
Let's look at the summary of the point of the real estate market recession cycle in the movie, one is to raise interest rates, increase the pressure on buyers to repay, and supply cuts appear; the other is that the market situation is not good, the number of takeovers is reduced, and the motivation is insufficient.
In the wave of market around 2016, in the name of the Yangtze River Delta and the Greater Bay Area city cluster, many cities have achieved a leap in house prices, and some counties in the Yangtze River Delta have exceeded 30,000+.
If we look at the second point in the real estate recession cycle, do these counties have enough takeovers? If not, a price correction is inevitable.
We are fortunate that we have not securitized mortgage loans, and we have not yet enlarged the financial bubble N times through financial derivatives, so the financial risk is only local.
It has little impact on ordinary buyers, but developers in the bureau are two days of ice and fire.
Xiao Lou's former colleague now works for a real estate company that has been rumored to be in bankruptcy, in addition to whether he can pay wages on time in the future, he is also worried about whether the entire wealth of hundreds of thousands of internal financing can be fully paid, and the interest is not, as long as the principal is that.
The explosion of real estate companies is not a new thing now, and the reason is still in pursuit of scale, recklessness, high-interest financing, high-priced land, resulting in excessive leverage. When the price of real estate is satisfied, borrowing new debt to repay old debt, the dividends brought by the rise in house prices can not only cover the original old debt, but also provide some funds for future development. This is the way to get land before.
Under high turnover, rapidly returning funds can meet the needs of ambition, and continuous cash flow provides the impetus for expansion.
But when the financial environment suddenly changes, highly leveraged developers are bound to have problems. Financing is restricted, new debt cannot be borrowed, the rhythm of supply destocking has also been disrupted by regulation, commercial bills are overdue, shares are frozen, assets are seized, and these radical developers are on the line.
Nothing new under the sun. These are nothing more than the cost of running blindfolded.