Tuesday, October 15, 2019

Compare the housing bubble in US and in China & how can Chinese Essay

Compare the housing bubble in US and in China & how can Chinese government learn from US - Essay Example My goal in this paper is to do a comparative study of the housing bubble in both U.S and China. China has experienced extraordinary growth in the housing market in the recent past; as a result, there has been a substantial increase in residential property. Nevertheless, while accelerating house prices in china may help indicate the presence of the bubble, its existence is still very controversial. Arguably, the current housing boom can be a rational bubble arising naturally from China’s economic transition. With the $580-billion stimulus package injected in 2008, just before the financial crises hit U.S, China’s economy has been able to withstand the global economic meltdown. The stimulus led to banks loosening their lending rate; hence there was excessive lending to home purchasers and thus rapidly raising the housing prices. Unfortunately, should the prices fall, there would be an increase in nonperforming loans and this would trigger china’s housing bubble. In U.S the housing bubble is believed to have been driven mainly by historically low interest rates. However, the low-interest rates, on their own, could not have caused the bubble and these have led to formulation of so many explanations and theories to try and explain what happened. According to (Holt) the correlation between housing price growth and subprime lending across market indicated that the lender took so much risk in booming markets thus increasing to even more the market demand. The meltdown in the housing market consequently, yielded to the devastating financial crisis. Evidently, the effects are still visible and the residential market In U.S is still on the road to recovery, with home prices yet to return to their historical high. Development of housing bubbles follows irrational exuberance for continuous rise of house prices. In the development of U.S Housing bubble, there was a rapid

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