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We have an immediate issue. In the next 3 years. Yes. Chinese President Xi Jinping has issued a clear warning. If you slow China down, the world slows down. Such times are very much like the 1930s. We have a breaking down of the monetary order. What's up, you guys? It's Graham here, and it's official. China's entire housing market has just completely collapsed. Without exaggeration, the last 20 years of gains have now been fully wiped out in the blink of an eye. That's an estimated $18 trillion gone from the one asset that was never supposed to fall. Even worse, but China's housing collapse isn't slowing down. Prices have fallen now for 35
months in a row, and it's becoming so bad that people are beginning to wonder if the world's second largest economy could lose 20 years of housing growth seemingly overnight. Could the same thing also happen here in the United States? Because let's be real, by the time everyone agrees that there's a problem, it's usually too late to do anything about it. That's why we got to talk about exactly what's going on, what this means for your own money here in the United States, and then most importantly, whether or not there's a risk to our own housing market doing something similar. Because I got to say, the more I looked into this, the more it feels as though this is something that's
about to spill over into the rest of the world. Although before we start, as usual, if you appreciate all the research that goes into a video like this, it would mean the world to me if you hit the like button and subscribe if you haven't done that already. It just helps out the channel. It's dumb, I get it, but is it Thank you for doing that. Here's a picture of a catfish. So thanks so much, and also a big thank you to SoFi for sponsoring this video, but more on that later. All right, so in order to understand exactly how crazy this housing collapse is, it's important to realize that in China, a house is not just a house. Instead, it's what I would like to call the wealth trap. See, for
those unfamiliar, up until the late 1990s, most of the housing in China was provided by the government. But as the started expanding, they realized that housing would need to be privatized as a way to incentivize developers to build faster, banks to lend more, and families to start buying homes of their own to generate extra economic activity. But as soon as that happened, everything changed. All of a sudden, hundreds of millions of people moved from farms to cities. Incomes were rising, debt was cheap, and urban home ownership exploded from about 50% in 1996 to roughly 90%. But here's the part that most people miss. The average Chinese family had very few spots to put their money. Like
the stock market was volatile and it wasn't trusted. Bank deposits paid barely anything. And strict capital control meant that you couldn't quite freely move your money. So real estate became the default investment for the vast majority of Chinese citizens. Again, this was not an investment, it was the investment. It was your safety net, your social status, your college fund. It was everything wrapped up in a single apartment. In fact, by the peak, 70% of Chinese household wealth was tied up in housing, which for context is twice as concentrated as here in the United States, and 22% of urban households owned multiple homes, which yeah, is a lot. Now, at first that created a feedback loop, which worked exactly as they had hoped. Families
bought homes, developers borrowed money to build more homes, local governments sold them the land, which made up about 40% of the revenue, banks kept lending, prices kept rising, and as a result, households bought even more. To give you an idea of just how extensive this was, at the very peak, real estate and everything connected to it made up roughly a quarter of China's entire economy, and prices increased nearly 700% from 2001 to 2017. It even got so extreme that buyers would pay up to 23 times their annual salary just to buy a house. Several cities used lottery systems to allocate them. And developers pre-sold apartments that didn't even exist yet, with buyers making mortgage payments on nothing other than a
rendering and a promise, because prices just only kept going up higher, right? Well, as it turns out, that was exactly when everything broke. And in terms of what actually popped the bubble, we got to talk about what I would like to call the housing reset. See, by 2020, even the Chinese government could tell that things were getting out of hand. Prices were skyrocketing. Homes were sitting empty. Smaller cities were wildly overbuilt. And developers were carrying an insane amount of debt. So, Beijing stepped in with a policy called the three red lines, which is just a fancy way of saying that the money printer for developers was essentially just shut off overnight. And the moment
that happened, everything started to collapse. First, developers like Evergrande, who had borrowed $300 billion, suddenly couldn't roll over their debt. Eventually, they were forced into a liquidation, with Country Garden, who's one of the largest home builders in the country, defaulting on its dollar bonds very shortly afterwards. This sent shockwaves throughout the entire housing market, because when the two giants failed, smaller developers, all of a sudden, couldn't finish the millions of apartments that were already pre-sold, which meant that regular families were now paying mortgages on properties that
didn't even exist and may not ever exist, because the developer was out of business. In fact, in 2022, this got so bad that buyers across hundreds of stalled projects threatened to just stop paying their mortgages entirely. That, of course, leads to the final domino beginning to fall, which would be confidence. Because when one person sees their neighbor paying into a mortgage on a property that doesn't even exist yet, they stop buying. And when they stop buying, developers lose their pre-sale money needed to finish the construction, which stalls projects even more, which scares away even more buyers. Basically, the same feedback loop that caused prices to rise for 20 years is now
working in reverse, and there's nothing anyone could do to stop it. On top of that, add in an aging population, fewer marriages, slowing urbanization, and an estimated inventory overhang in the tens of millions of empty or unfinished housing units, and you have the perfect storm that's leading to the biggest housing crash ever in history. Purely because China's is so massive. So, in terms of what's happening today, how much force this has gotten, and what this means for all of us in the United States, here's what you came for. Because the biggest lesson from China's collapse isn't just that real estate could fall, it's what happens when an entire country has too much of its
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Thanks to SoFi for sponsoring this segment, and now let's get back to the video. All right, so in terms of what's happening today, how quickly their housing market is falling and the impact to all of us in the United States, there are two more topics worth discussing. With the first being major losses. As of now, China's entire housing market is trading at the same level as it was in 2006. We're talking 20 years of housing growth completely evaporated. And what's scary is that it's not stopping. It's getting worse. Like, 70 of their major cities fell another 3 and 1/2% year-over-year in May, and other areas are down more
than 10%. Well, construction has collapsed a whopping 22%. That's the equivalent of basically losing their entire GDP in a matter of a year. And now, even though it seems helpless, Beijing is trying to stop the collapse. And they've approved a 7 trillion yuan white list program to finish stalled projects. They've cut mortgage rates, and they've lowered down payments. But, a Reuters poll of analysts expects prices to fall another 4% this year before maybe stabilizing in 2027. On top of that, this doesn't just affect the housing market, either. Remember, when most Chinese citizens have their wealth tied up in property, a loss here often results in a decline in spending and loss of confidence. And that results in
a deflationary spiral of their currency as people hoard onto cash for fear of spending anything. This means that when real estate is tied to roughly 15% of all employment in China and land sales make up 40% of all local government revenue, you not only get a housing shock, but you also get a wealth shock, a spending shock, a job shock, and even a local government revenue shock all in one. So, in terms of what this means for the future, if our own housing market could ever see something similar, and whether or not this is going to impact all of us in the United States, we got to talk about the domino effect. To start, let's just get the good news out of the way first. No, China's housing
collapse is not going to be the beginning of our 2008. American banks have very little direct exposure to the Chinese real estate market, and strict capital controls mean that our banking system is almost entirely separate. This means that your money is not directly tied to some unfinished apartment tower halfway around the world. However, just because you don't have direct exposure doesn't mean you won't feel it. And it'll show up in places that you might not expect. Like first, your portfolio. The reality is, if you own an S&P 500 index fund, a lot of those companies sell internationally to China. We're talking luxury brands, automakers, semiconductor companies, industrial equipment. And when Chinese customers
feel 18 trillion dollars poor, they stop spending money. And that could be seen throughout weaker earnings, more volatility, and some bumps along the way in companies you might own without even realizing it. That also brings us to number two, commodities. Like here's a wild stat. At the peak, Chinese construction consumed roughly half of the world's steel and 60% of its cement. So, when China stops building, global demand for steel, copper, iron ore, and energy fall right alongside with it, which might be good news if you're currently building a house because there's less demand for it and prices could fall. But, it's bad news if you're invested in some of these mining companies or own the commodity itself.
Third, we have the trade war effect. And this is the one to watch because when China can't sell to its own consumers, it exports its way out, flooding the market with a lot of cheap goods. Now, on the surface, cheaper stuff seems great, but it also forces American manufacturing to lower their prices to be more competitive. So, whether this winds up lowering prices or raising them really just depends on how Washington responds to it all. Leading to number four, the dollar. Believe it or not, a Chinese property crisis is actually good for the US dollar because when the world gets nervous, more money flows into US Treasuries, and a weaker yuan actually makes the dollar look better in
comparison. So, for anyone curious whether or not the dollar is going to get dethroned, this is pretty much the exact opposite of that. If anything, it's actually a really good time to take an international vacation. Like, for example, I'm just saying, Japan because their yen is near a record low. But, even with all of that said, I'm sure a lot of people want to know, is our housing market here in the United States at risk of a collapse? And could we see our housing prices drop just as suddenly? And to answer that, we have to talk about the housing cycle. Look, on the surface, some of the headlines do seem eerily similar. Like, here in the United States, the median asking price
just fell 2 and 1/2% year over year in June, which is the steepest annual decline started tracking in 2017. This happens to mark the eighth straight month of falling listing prices. On top of that, there were nearly 47% more home sellers than buyers in May. And in prior boom towns like Austin, Texas, prices are down a full 27% from their 2022 peak. But, beneath the surface, the two markets between the United States and China could not be more fundamentally different from each other because first we have concentration. When it comes to this, China's households hold about 70% of their wealth in real estate. But here in the United States, that's about 25%. So even a real correction doesn't
completely wipe out the country's wealth. That leads us to number two, supply. In this case, China just built way too much. They have entire ghost cities, millions of units with nobody living in them. But America has almost the exact opposite problem. We're actually short an estimated 1.2 million homes with only 4.6 months worth of supply on the market. And you can't have a China-style collapse without even having enough homes to go around to begin with. And that leaves us with finally three, the debt structure. The China's buyers paid upfront for homes that didn't exist to developers who were leveraged out the wazoo. Meanwhile, American homeowners are sitting on 30-year fixed-rate mortgages, most of
them locked in under 4% with record home equity, which is just a fancy way of saying that nobody is forced to sell. And that's why prices are just grinding sideways. Now that said, what is happening in the United States is what economists are calling the two Americas. With this, the Northeast and Midwest are still hitting record highs, including Hartford, Connecticut, which is up 25% from its 2022 peak. Well, the pandemic boom towns across Texas, Florida, and the Mountain West keep falling. Even the national numbers are split because list prices are falling at a record pace, while the actual sale prices just hit a record high of 440,000 because the homes that do sell are more increasingly just the expensive ones.
That's why no, we're not facing anywhere near what China's going through, but we're also not seeing the same type of market in 2021 where prices just kept going higher. So in terms of my own thoughts and what I think is going to happen next, here's what you need to know. From my perspective, China's real estate collapse was never just about real estate. It was all about concentration. Remember, China put 70% of its wealth into one asset because everyone believed that prices couldn't go down. And I hate to say it, but I'm seeing a lot of that same mentality here right now in the United States as well. Like I'm seeing people every day putting all of their wealth in one house or one stock not because they understand the
risk, but because it's just worked out really well over the last 10 years and they think, "Oh, it's done well in the past. It must continue to go well." But that's not guaranteed. To me, that is the lesson. It's not that like real estate or stocks are dangerous. It's that something becomes inherently risky when all of your wealth is tied to one single thing. Second, it's also important to keep in mind that markets can remain irrational on the way down as well. Plenty of Chinese buyers tried to catch the bottom in 2023, 4, and 5, and then the markets kept falling further. Because once confidence breaks, the pendulum swings just as far in the other direction. Exactly why I never try to
time the markets, not on the way up, not on the way down, because let's be real. If an entire government throwing trillions of dollars at the problem can't call the bottom themselves, neither could you or I. So, in terms of what I would actually do about this, I know people hate the answer and they start joking about this in the comments, all this I read the comments. I know what people are saying. But my answer's going to be the same. It's just diversify. Never sink everything into one asset, one sector, one stock, one company, one piece of real estate. You have to spread out your risk. Even if it's done well in the past, that doesn't mean it will always
continue doing so. And if you spread out your risk, just in case a few fail, you always have something to fall back on. That's why I think the best thing that you could do is make sure your financial life never depends on a single number going up. And no matter what, hitting the like button and subscribing if you haven't done that already. So, with that said, thank you so much. And also, if you want early access to videos just like this as well as a bonus video every single week that I don't post publicly, feel free to join as a channel member and in addition to that, you also get priority responses to all of your comments and I'm also doing member financial audits where you can send me
your finances and I will roast you in front of the entire membership community. So if that sounds good, feel free to join. Thank you so much and until next time.
