Why are house prices still going to keep falling?

Where is the breakthrough point for real estate? Many people say it’s national policy—that as long as the country wants to pull it up, there’s nothing that can’t be pulled up. Others say it’s money printing: as long as they keep printing, house prices will always rise. Wrong. First of all, it’s policy. If the country wanted to pull it up, why hasn’t it been pulling it up all these years? The playbook is almost out, yet it’s still falling. Do they really want you to lose more money?

And then there’s printing money. In the past, the money printed went into real estate as a prerequisite—precisely because house prices were rising. So this completely reverses cause and effect: houses are rising, so regardless of who receives the printed money, it will be directed first to real estate, which makes house prices rise further. Is this game still like that now? Where does the printed money go? Who gets the money first and who gets it later—there’s an order to it.

For ordinary people, by the time the money reaches them, people’s livelihoods can’t afford it anymore. You think they’re printing toilet paper—print it whenever they want? For a place’s houses to rise, the simplest indicator is that local residents’ incomes must rise. For residents’ incomes to rise, industries have to revive. But with the current unemployment rate, not even stable ongoing income is guaranteed—so you use your coffin money to buy a house? It won’t end up being a disaster later?

And for industries to revive, people have to consume. If everyone doesn’t consume, how can every industry prosper? But where is people’s money going? The answer is: nowhere. Our domestic demand is a curse—you haven’t seen ordinary people have any real needs. Why? We’ve looped back: all our domestic demand has run into housing.

Do you know what a 30-year mortgage means? It means most consumption scenarios for the next 30 years are already spent all at once—spent on what? This house. When everyone is willing to run down the majority of their consumption over the next 30 years and spend it on the house of the moment, where does any domestic demand still come from? It’s already been spent—right here. That’s why you find that besides real estate and real-estate-related industries doing better, most other industries don’t really do well.

Why? Many experts turn cause and effect upside down. They say real estate is a pillar industry; the GDP boost is so huge that it must never decline, and the government will definitely rescue it—blah blah. Come on, be clear: it does drive some industries, but at the cost of sucking the life out of other industries. What came after has already turned into hostage-taking; it’s no longer a positive push. How much “water” is in that GDP built from rebar and cement that no one lives in? You don’t have that in mind?

China’s economy has prospered with real estate, and also fallen because of real estate. And this fall could have been less disastrous. Earlier, when the government should have adjusted it back normally according to the rules, it instead gave it a shot of adrenaline and refused to let it correct—then it kept running wild, which is what led to today’s situation.

So why doesn’t consumption happen? Why is there no domestic demand? Because everything is locked up in housing: all six wallets go to the down payment, and every month 70% of income has to go to mortgage payments—what else can you consume? And where does that money go? It goes into the government’s pockets, into Xu Jiayin’s pockets, and into the banks’ pockets. Now that Xu Jiayin has been locked up, the banks shut their eyes, waiting for the state to rescue them. And what happens to the money the government collects? Part of it goes to real matters. Another part gets carved into worthless “sunk projects,” leaving people’s money to evaporate out of thin air.

Therefore, for housing to rise, the 30-year consumption debt that ordinary people have been forced to pre-spend has to be paid back first. Once those funds are almost finished and people feel like they finally have a bit of money in their pockets, demand can come out. When demand comes out, only then do various industries have a chance to meet it—and only then can the economy be pulled up. When the economy rises, at least it enters a virtuous cycle; then ordinary people’s income growth can enter a virtuous cycle too. Only then can houses possibly be bought again—otherwise, don’t even think about it.

Many people told me a few months ago that Shanghai has rebounded, Beijing has rebounded too, and there are also predictions from Goldman Sachs and others about when real estate will stop falling. They asked what I think. I said I don’t even need to look. If you want to go catch falling knives, sure—if you don’t want to, then just stay put honestly: you’ve already overdrawn for 20 or 30 years, and all the money has been squandered. You want the market to stop falling so fast? You’re too dismissive of economic规律. The people who write research reports at Goldman Sachs don’t understand a thing.

Don’t be misled by anything like “land kings.” And don’t be fooled by talk of a rebound—that’s just a visibility trick of statistics. The fact is: right now, only people who have a little money left can continue consuming. Then let those people go catch falling knives, build the houses they like—luxury homes—let them improve. By the time their money runs out too, the new buildings they bought in the past two years will have fallen by half again. Everyone together will fall back into relative poverty. Then we can drag it out another four or five years without a crisis—at which point this debt will have to be settled, more or less.

As for whether you should buy or not, we’ll talk about it when that time comes.