By Doug Porter
It seems like we’re rushing from one crisis to the next these days on the world’s economic stage. Puerto Rico is flailing, Greece is on the brink and now the Chinese stock market is tanking. The first two are relatively minor in terms of their actual economic impact worldwide, the situation in Asia poses a threat to real estate markets, especially in California.
In just over three weeks Chinese investors have seen $3 trillion (that’s with a “T”) in equity vanish, despite increasingly desperate measures by the government. That is six times Greece’s entire foreign debt, or 11 years of Greece’s economic output, according to the New York Times.
Hundreds of companies have halted trading, more credit has been made available and the state pension fund’s assets are being tapped, all to no avail. Much of the Chinese market boom has been fueled by stock purchases made on credit. Now that those stocks are worth less than what was paid for them, it’s reasonable to assume investors will be forced to sell off real estate assets to pay off the loans. And they’ve been buying in California in a big way. [Read more…]