Now a bubble isn't a bubble unless it bursts. Until then, it's just a boom. So the question is which these will be. Hong Kong's housing market has such limited supply that it seems like it could go up indefinitely. But the others, well, they're looking a little more wobbly. The problem isn't just that they're probably overbuilt, but also that the Federal Reserve is getting ready to tighten policy. Higher rates in the U.S. will suction up a lot of the money that had gone overseas looking for higher returns, because now it'll be able to get them here. That'll put even more pressure on Asian economies that were already starting to slow down as housing prices did, with the result that prices might fall even more. There's a real risk that could turn into a vicious circle of lower prices and more defaults that even zero interest rates wouldn't be able to turn around. Sound familiar?
But it's even worse in China because of their dollar peg. It's hard to believe, but after decades of manipulating its currency down against the dollar, China now has to prop it up. That's because so much money is leaving the country that the yuan "wants" to weaken. That means China not only has an overvalued currency that's hurting exports, but it also has to shrink its money supply—right when it needs a bigger one—that's hurting the rest of its economy, all so it can keep it overvalued. That sound you hear is the air rushing out of its property market.
Anyone think this time is different?


