The 2022 Real Estate Crash

While the U.S. real estate market seems to be stabilizing, the Chinese market is doing the complete opposite and causing their economy to collapse. China's economy is supported mainly by real estate, with about 70% of the nation's wealth tied to the market. In comparison, it's estimated that only about 29% of investments in the U.S. are in real estate. This means that any sort of drop in real estate values in China could cause an economic meltdown for the rapidly-growing country.

So, what's happening in the Chinese real estate market right now? Real estate values in China have skyrocketed in recent years due to heavy demand. For context, the mean sale price per square meter in Shenzhen, China, the most expensive real estate market is $7,768. In comparison, the U.S.' most expensive real estate market, San Fransisco, has a mean sale price per square meter of $4,888. So real estate in China typically costs more than in the U.S. but workers are paid less on average than in most other developed countries. In China, the average annual wage is $54,422 USD while the median household income in the U.S. (in 2019) $68,703.

Because of these rising prices, many people began taking on large loans and paying developers for a house before it has even been built since many want to buy into the market before prices rise even more. Developers haven't all been using the money properly though, as many have been reportedly taking the money they get from a pre-sale and using it to begin another project where they will take in even more pre-sale money. This means that developers are taking citizens' money and never actually building the homes that they are paying for.

Many citizens are now boycotting paying their mortgages, which has caused the system to deteriorate even more and created a problem for the banks that loaned out this money. To make the bank's problems even worse, however, many banks have loaned out far more than they have in assets because of the lowered asset requirements that China installed during the COVID lockdowns.

This has also caused unemployment across China to skyrocket, creating another issue with unemployment.

The government has tried to step in to stop the collapse, but it's not guaranteed that they will be able to solve a problem of this size.