WHEN HOUSING MARKETS MEET SHADOW BANKING

This book contends that the housing markets and shadow banking have been involved in a kind of 'dance' over the last two decades. It traces this dance to be between the roles of mortgage markets since the 1980s in both the US and China and the developments of securitization and 'shadow banks.' It gives side-by-side comparisons between the two and suggests that house price dynamics have been similar, but also quite different. Both had booms. The US had a bubble that burst around 2007 — after prices became quite high relative to rents and then crashed. However, Chinese housing markets, which had a similar run-up, did not have a burst bubble. Rather, the rising property values appear to have been from space becoming more valuable as reflected in rent growth. In the US, prices chased prices; in China, prices chased rents.

Mortgage markets were more complicated, beginning with the securitization in the US, and the rise of shadow banks that both led and followed. The US used shadow banks to hold pieces of securitization deals and funded them with deposit–like debt. These pieces were fragile and their collapse caused 'silent runs,' which were instrumental in the ensuing crash. China's shadow banks were more like traditional intermediaries, unattached to securitization. Their liabilities were mostly not short-term, as was the case with US shadow banks. So, runs were not a problem, but getting the market to work efficiently was.

The markets have evolved. And while the music has changed, the dance is not over.

Contents:

• Preface
• About the Authors
• Acknowledgments
• Introduction
• Housing Markets: The West
• Housing Markets: China
• Housing Dynamics and House Prices
• Mortgages, Mortgage Math and Pricing Mortgages
• Where Does the Money Come From?: The Structure of US Mortgage Markets
• Shadow Banking: Banking without Banks
• Shadow Banking with Chinese Characteristics
• Securitization and Its Discontents
• Housing Markets and Shadow Banking: Part I — The Dark Side of the Force: Securitized Shadow Banking and GFC
• Housing Markets and Shadow Banking: Part II — China: 'This One Is Different', with Tiger Parents
• Ten Years After: The Legacy of the GFC
• Epilogue: 2022 — Leftovers from the Pandemic and New Surprises
• References
• Index

Readership: Academics, researchers and practitioners in banking, finance, and real estate investments interested in the US and Chinese markets. Advanced undergraduate and graduate students in banking, finance, and real estate investments, particularly those studying the Asian market and non-economist/finance courses with an analytical take. General readers who are interested in the topic.

Key Features:

• This is probably the first book that links shadow banking, securitization, and housing markets of the US and China. It is analytical, but not overly technical. It is a narrative, but not as detailed as a textbook, providing various angles for readers from different backgrounds, following the "dance" between mortgage and housing markets and shadow banking, along with comparisons across the largest economies in the world
• A major feature is the coherent housing market story that starts with underlying demand and supply forces, which are then impacted by the mortgage markets, fueled by the shadow banking markets and securitization, creating momentum and maybe bubbles that eventually lead to a financial crisis. Unlike different strands of literature that cover these areas individually, this book links all the components of housing bubbles into one complete story with two illustrations — the US and Chinese housing markets, with discussions of differences as well as similarities