Three common signs of real estate bubble

In 1925, Ponzi, a financial frauder who had just paid bail out of prison, fled to the sunny Florida and started a real estate business with a pseudonym.
Like Ponzi, there are many other heroes coming to and from Florida. Everyone came together for a common revolutionary goal.
In 1910, Carl Fisher, the founder of Fisher Body, traveled to Miami with a 15-year-old bride, and he caught the glimpse of this feng shui. In Florida, Fisher has pushed the local government to build roads that extend in all directions, and housing prices along the highway have soared.
The famous American politician William Jennings Bryan moved his family to Florida to make his wife with arthritis more comfortable. The famous local real estate tycoon George Merrick found Brian and asked him to give his "Spanish Villa" project platform. Brian had participated in the presidential campaign and almost became the president of the United States. When he was running for the presidency, he spoke for the poor peasants and opposed the gold standard. Now he shouts for the real estate business and praises the "Gold Coast." Merrick pays Brian $100,000 a year, half in cash and the other in land.
This is the first real real estate bubble that the United States has experienced. Before, the United States had once had a rise in land prices, but that was mostly rural land. This is the first time the United States has experienced real estate prices in urban areas.
In 1925 and 1926, Florida's real estate bubble entered its peak. Developers hire bands and circuses to attract customers. The sidewalk is simply not accessible because there are so many real estate agents who solicit business. Open the newspaper and see all the real estate advertisements.
There are a lot of "guarantee book guys" in Florida. They are all young and healthy, wearing white suits to encourage customers to buy "guarantee books." This guarantee is equivalent to a deposit. Investors who bought a "guarantee" are not trying to buy a house. They will sell it and earn the difference. In the summer of 1925, during the heyday of the real estate boom, the guarantee book could be resold for eight times a day. Guaranteed receipts can also be circulated like money, and hotels, nightclubs and brothels accept these receipts.
The real estate bubble you talked about was 80 years ago in the United States. Although there are many influencing factors, from the Florida real estate bubble of the 1920s, we can see some common features of the real estate bubble.

Rapidly changing real estate needs <br> Real estate has never had a so-called "rigid demand." How big is the house to live in? Do you have to buy a house to live in? But at some particular stage, there may be some unprecedented changes in real estate demand.
The real estate bubble in Florida in the 1920s was closely related to the popularity of cars. With the advent of Ford Motor Company's famous T-car, more and more Americans can buy cheap cars, and they drive to Florida, where the climate is warm and the land is cheap. The locals referred to these northern squats driving south as “tin can tourists”.
At that time, there was also a sharp rise in house prices in New York, Chicago, Detroit, etc., because commercial real estate became a new investment model. The 1920s was a decade of skyscrapers. The high-rise buildings that broke ground in this decade are more than any 10 years in the 20th century. Newly built skyscrapers are no longer a headquarters office for a company, and extra rooms can be rented out to other customers to earn rent.
These emerging demands are not all illusory, but because this is a new demand, it often makes it difficult to judge where is the reasonable range, and it is easier to believe that future housing prices will skyrocket.
The emergence of the US subprime real estate loan crisis in 2007 stemmed from a sudden start of loans to buy a house by a group of low-income families. This is a new phenomenon.
After the 21st century, China's housing prices began to rise. It originated from the reform of the housing system in the 1990s. Suddenly, it changed from a unit to a house to buy a house. This is an experience we have never had before.

Extremely loose monetary policy <br> Do monetary policy pay attention to asset prices including house prices and stock prices? There is no standard answer to this question so far. But loose monetary policy can often lead to excessive liquidity, which will flow into the real estate market or the stock market, pushing up asset prices.
In 1924, the Fed lowered its discount rate, which is the rate at which it lends to commercial banks, from 4.5% to 3% in order to help the British Empire return to the gold standard. This low interest rate policy has led to increased liquidity in the market, and a lot of liquidity has flowed into the real estate market.
The emergence of the US subprime real estate loan crisis in 2007 also occurred during the period when the central bank kept cutting interest rates and the world was in an ultra-low interest rate.
After China implemented the housing system reform, house prices began to rise, but eventually the rate of house price increase was not fast. The real acceleration of the increase was after the implementation of loose monetary policy.

Freedom of financial speculation in the “extraordinary” <br> If there is no financial institution to help, real estate prices will not expand sharply. In the past, under the loose financial supervision system, financial speculation will soon be higher than the waves.
In the Florida real estate bubble of the 1920s, there were various financial institutions involved in speculation. Relatively speaking, traditional banks are more conservative, and the most radical is the Construction and Loan Association.
These institutions, like mutual savings banks, mainly lend to their own members. The main authorities responsible for supervising construction and loan associations are local governments, and local regulators believe that these institutions do not absorb public deposits. All loans have real estate as collateral, so there will be no problems, so these institutions are closed. Eyes only.
Many construction and loan associations are established by real estate developers. They stimulate people to buy houses by reducing the down payment ratio and issuing secondary mortgage loans. Although the Construction and Loan Association does not have a run like a bank, if the loan contract default rate increases, there will also be insolvency issues.
Real estate developers also finance through debt issuance. Securitization had already occurred. During the 1920s, developers issued about $10 billion in real estate bonds. About one-third of real estate debt is based on residential mortgage interest, while the remaining real estate debt is based on future lease income from commercial real estate projects. In order to attract investors to buy, the issuer guarantees bondholders can get a 5% interest rate.
Of course, this means that if the potential investment returns are insufficient, the project or the insurance company will bear a lot of risks – the dazzling “financial innovation” that led to the 2007 US subprime mortgage crisis. Not an innovation, 80 years ago, Florida real estate developers are already familiar with these tricks.
Like all bubbles, what caused the bursting of the Florida real estate bubble has been controversial.
Some people say that the stock market has fallen. Between February and May 1926, the S&P Composite fell 11%.
Some people say that the climate is abnormal. Florida was unusually cold in the winter of 1926, and it was hot in the summer afterwards. In 1926, a hurricane hit Miami, killing more than 100 people in the city.
Other states, especially neighboring states, are worried that funds will be sucked away by Florida. They have passed legislation to restrict capital outflows, and they have been rumored everywhere that they can't buy meat in Florida, and there will be giant lizards biting in downtown.
Florida's real estate bubble is coming fast and going fast. First, the volume of trading fell, and after a while, the price fell. In Florida and neighboring Georgia, 155 banks went bankrupt. Most of these banks are owned or controlled by two bankers, James R. Anthony and Wesley D. Manley. Manley was arrested. When his lawyer defended him, he claimed that he was insane.
Compared with the 2007 US real estate bubble, the real estate crisis in Florida in the 1920s was relatively less affected. The most affected was Florida and its neighboring Georgia, but almost all the symptoms of the real estate bubble were found at the time.
Nearly 80 years later, due to the long years and the bleak memory, many people forgot the Florida real estate bubble. The result of forgetfulness is that the crisis can only come once again, and it will come even harder. (This article was authored by the author's chief economist Cai Cai, the chief economist of the company, and the author of the WeChat public account "He Fan Research Notes", recommended attention.)

The real estate bubble can explain the "reflexivity principle" that the financial crocodile Soros often talks about.
According to the refinement of the river full of fog -
Soros Principle 1: Human beings are extremely poor. Eighty percent of the judgments of this world are wrong.
Soros Principle 2: Although human judgment is wrong, it is based on judgment. Therefore, the wrong judgment of human beings, in turn, constitutes the human society itself.
In other words -
1. The real estate bubble stems from an illusory perception.
2. The illusory perception of most people can be accumulated into a real price increase.
3. The bubble is a good judgment. It is difficult to judge when the bubble bursts.

Extended reading: Why not go to stocks?
Destocking is not a unique problem in the property market. Any commodity in the world may face destocking. The most common method is “price reduction promotion”.
Commercial housing is of course a commodity, but it does not comply with the general rules of the commodity world. Of course, this exception is limited to China. At present, all localities are intensively introducing inventory plans, tax reductions, rewards, lowering the down payment ratio, mobilizing students and migrant workers to buy houses, and stopping the construction of resettlement houses forcing relocated households to enter the market... Dig the door and make holes. However, localities have neglected the most common option - price cuts.
It is better for the government to post money, rewards, tax cuts, down payment, unlimited financial risks, and never consider reducing housing prices. Why?
Is it because the price cut has no effect? ——There is a saying in the real estate sector that “buy up and not buy down”, which can blind people, but don’t forget that this is a theory from the financial investment community, not a law in the commodity field. Real estate speculators and investors will consider this, and the real self-occupation demanders will naturally be as cheap as possible. After the price cut reaches a certain level, the unprofitable speculators will naturally withdraw, and the real self-housing consumers will gradually enter the market and improve their living conditions at reasonable cost.
If you cut the price, you will definitely be able to go to the stock, as long as it is enough, not a trick. At the same time, the price cut will also help the property market return to the residential property, and gradually withdraw from the financial speculation field, which will help transform the economic structure. In the long run, it is beneficial to the country and the people. So why not consider the specific plans in each place?
- Because the real purpose of the local government is not to go to inventory, but to restart the land finance.
Going to stock alone will not benefit the local finances. It may be beneficial to the long-term transformation, but it will not be able to hydrolyze the thirst. Now local governments are under pressure and need a lot of money to fill the hole. The local government's wishful thinking is that by the east wind of the first-tier cities, the illusion of a warm and even hot property market is created locally, thus creating conditions for restarting the land finance.
The difficulty lies in the fact that the cities below the 2, 3, and 4 lines are mostly net outflow areas, the provincial economy is decadent, the housing ownership rate is extremely high, and the inventory is extremely large, often for more than 10 years, relying only on the real local housing demand, and Reluctant to cut prices, the rational market can not recover.
The only way is to create the illusion and use any means to promote the rise in housing prices. This will attract investors and speculators to enter the market, attracting panicked consumers who are worried about the soaring housing prices, and using the old methods of a few years ago to activate the property market. The secret is not to cut prices, but to go up, let the price lose rationality, then let the buyers lose their rationality, and finally let the developers lose their rationality, and start to buy a new plate with a slap in the face. Relative to this overall situation, tax cuts, subsidies, and rewards are all small and expensive. Therefore, local governments would rather spend public funds to subsidize buyers, but also strive to keep prices down.
Don't be long, as long as this is enough. Last time, the frenzy of the third- and fourth-tier cities was also the one after the year of 2009. In the past three or two years, the building was full of troubles. The local government sold the land to the soft, and then left the ghost town everywhere. Who cares?
But you must seize the opportunity. After several years of downturn in the property market, the turning point was confirmed, the third and fourth lines were everywhere in the ghost town, and so on, the vigilance of the people has improved. The sudden rush of the first-tier cities is the only thing that can be borrowed. Anyone can't keep up with the line for a long time. If you miss this wave, you will have no hope.
Therefore, what we are seeing is that in the near future, there has been a sudden intensive introduction of a new inventory policy, which is far more powerful than the period when the property market in the past year or two was really depressed.
Obviously, its intention is not to solve the problem with the right medicine, but to race against the wind.
This is the so-called vicious circle. With the price increase to go to the inventory, the inventory must be more and more, two or three years can not buy a house for ten years, but two or three years is enough to cover the inventory for ten years. The developer is the most profitable person who knows how to seize the opportunity. As long as you dare to rise, he dares to open a new disk. The development cycle is only one or two years. As long as you fast forward and catch up, you will not be afraid of high land cost. Can't go on, and the money is fleeing. The bad luck is the bank and the people. Is the boss afraid?
The fear is that the boss is not afraid, and the officials are not afraid.
In order to bring the property market without premature price reduction, all localities have challenged the national minimum line, seeking to further lower the threshold for down payment, 20%, 10% or even zero down payment, which is equivalent to raising the financial leverage to 5 times, 10 times, and infinitely high... The measures are not good for self-occupied consumers, and they are not in line with the ideas of first-time home buyers. Who is willing to pay more for N-year loans? Who wants to work for the bank all his life? ——But it is very beneficial for real estate speculators to enter the market to speculate, to open a risky journey with a small blog, and their approach is also fast-forward and fast-out – everyone knows that this dial is different from previous years.
In case of unfortunate quilt, high financial leverage does not allow them to fight, and will certainly resolutely throw or even abandon the stop loss. Corresponding to the down payment ratio, they may be able to abandon the loan at 20%, 10% or even less. In the context of the generally low down payment, financial risks have risen to unprecedented levels in the context of high housing prices. The safest mortgages have turned into the most dangerous varieties – re-emerging stock market crashes in the property market, not alarmist, after leveraging, this Once is absolutely different from the past.
Not going through the normal commodity price rules to go to inventory is just brewing the risk. And this risk may not have the chance to turn over.

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