No house, no payments

Don’t get any ideas, but homeowners in China are boycotting their mortgage payments. 

What happened: Hundreds of thousands of homeowners across 100 cities are banding together and refusing to repay loans on unfinished apartments, per The News York Times. 

  • “It’s one of the most widespread acts of public defiance in a country where even minor protests are quelled,” writes Daisuke Wakabayashi.

Why it matters: By some estimates, the boycotts could affect ~US$222 billion of home loans in China, or roughly 4% of all outstanding mortgages. The country’s economy is already hurting so much that the central bank cut its interest rate earlier this week.  

Why it happened: For years, homeowners were willing to pay mortgages on properties that didn’t exist, since the expectation was that property values only went up (sounds familiar).

  • Developers would then borrow huge sums to build these homes, and the market started heating up (fast). By 2020, the government had cracked down on these loans.
  • Firms that relied on easy access to funds couldn’t keep construction going. Large property developers, like Evergrande, fell into default, impacting the whole industry. 

Yes, but: One finance professor told The New York Times that even if Chinese authorities were to give developers enough capital to finish the homes, they’re still wildly overvalued.

Big picture: As China trends towards its slowest growth rate in decades, the country has some big problems to fix: Beyond the property crisis, consumers aren’t spending enough, companies aren’t selling enough, and the youth unemployment rate has reached new highs.