‘Subprimes’ in Shanghai hint of recession

Chinese credit markets are too tight for it to have a subprime mortgage market.

But, there is a subprime-like bubble in Chinese real estate, and it’s now at least leaking air, if not in the process of bursting.

The year-over-year rate of increase in Chinese real estate values has nearly halved this year as compared to last year’s growth rate (New York Times graphic).

“It’s collapsing; it’s unbelievable, and most of it is from mortgages — I don’t see how the housing sector is going at all,” said Nicholas R. Lardy, a specialist in Chinese finance at the Peterson Institute for International Economics in Washington.

He added that the decline was so precipitous that it had to reflect weaker demand for housing, and not just regulatory restrictions on credit.

And, it’s part of a greater cooling off of the Chinese economy. Shanghai stock prices have dropped two-thirds in a year.

In short, both Obama-Biden and McCain-Palin need to get honest that we are going to have a recession, it’s not going to end overnight, and it could be strong.