Recently released data on foreclosure auction properties for the first quarter of this year shows that the number of listings reached 293,300 units, representing a year-over-year increase of 7.20%. Overall, although the growth rate has slowed compared to previous years, it continues to rise. This figure is also considered an underestimation, as many individuals unable to repay their mortgages are allowed by banks to engage in "discounted repayment," meaning as long as a portion of the loan is repaid, the property is not seized for auction. If this category were included, the number would be even higher.
Another noteworthy statistic is the average discount rate. In the first quarter of this year, the discount rate stood at 73.66%, indicating properties are selling at approximately a 30% discount. Foreclosure auction properties are already listed below market average prices, yet they still require a significant discount to attract buyers. This underscores that the real estate market is firmly a buyer's market, where any purchaser will negotiate aggressively.
Examining listing volumes and discount rates across cities, first-tier cities generally show more stability in listing volumes compared to second-tier cities (third-tier cities are excluded due to low liquidity), with transaction volumes also significantly higher. This suggests that during economic downturns, core assets remain more stable and liquid. However, in terms of discount rates, first-tier cities show no significant advantage over second-tier cities, indicating a nationwide trend of deflating real estate bubbles, with even first-tier cities still carrying substantial泡沫.
The increase in foreclosure auction properties has a significant impact on the housing market. National first-quarter total transaction volume is estimated at less than 2 million units, with foreclosure listings accounting for about 15% of that. This means that even genuine homebuyers may consider foreclosure auctions, making them increasingly important to the housing market's pricing system.
Take Shanghai as an example: with approximately 8.5 million housing units, current listings stand at around 200,000, a listing rate of about 2.5%. However, this is just the listing rate; the proportion of sellers genuinely willing to sell (listing at a 10% discount to market price) is likely less than half, meaning only about 1% of homeowners are sincere sellers. In contrast, foreclosure auctions represent highly motivated sellers, as banks have no use for the properties—viewing them as non-performing assets without intrinsic value, requiring maintenance and depreciating rapidly. Banks are eager to dispose of these assets quickly, typically selling at 20–30% discounts to market prices.
With only 1% of Shanghai homeowners genuinely willing to sell, housing prices in the city are already struggling to hold steady. After a brief spring rally, prices have resumed their decline. If foreclosure auction listings continue to grow, their impact on housing prices could be substantial.
This dynamic has led to a shift in banks' attitudes. Previously, banks took a hardline approach with mortgage defaulters. However, with the rise in defaults, banks are now more cautious about repossessing properties, often negotiating with borrowers to repay even minimal amounts, such as interest-only payments, to avoid foreclosure. The logic is straightforward: strictly enforcing monthly payments could trigger a wave of defaults, leading to a surge in foreclosure auctions. An increase in such auctions would further depress housing prices, potentially creating a vicious cycle of more defaults—a scenario reminiscent of the 2008 U.S. subprime mortgage crisis, as depicted in the film "The Big Short."
As early as 2017, it was advised to divest from properties in third- and fourth-tier cities, and since 2021, from first- and strong second-tier cities as well, due to low rental yields and lack of appreciation potential. Macroeconomic factors and unemployment rates further reinforce this view.
For those seeking stability, bonds or dividend stocks offering 3–4% returns are preferable to the approximately 2% rental yield from properties. For more aggressive investors, U.S. stocks offer higher dividend yields and, as another asset class with泡沫 potential, may present better opportunities. Alternatives like long-term gold holdings (with an annualized return of 10% since the turn of the century) or even speculative investments in Bitcoin or current stock market highs are more attractive than real estate. At the very least, these options offer profit potential, whereas the best outcome for housing is price stabilization, not appreciation.
An asset destined to decline—or at best stagnate with low holding returns—holds little appeal.
Comments