International real estate yearning for quantitative easing

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As an example of how interconnected the global economy is, international real estate stocks are hoping Federal Reserve Chairman Ben Bernanke will initiate stronger economic stimulus measures when he speaks this Friday at the economic policy summit in Jackson Hole.

[caption id="attachment_70234" align="alignright" width="300" caption="Suburban housing in Heibei, China"] Image courtesy Tim Wang: http://www.flickr.com/photos/jiazi/ [/caption]

International real estate stocks Xinyuan Real Estate, ( XIN , quote ), a Chinese home builder, and Gafisa SA ( GFA , quote ), a Brazilian home builder, have both rallied in 2012. Xinyuan is up by 76.47% for the year. Gafisa is up by 45.26% for the last quarter of market action, posting a profit for the most recent quarter .

Before the recent rebounds, each had suffered tremendously from the declining economic growth in their home countries. International real estate activity is picking up, with markets in Asia expanding .

Based on the recent stock market rally, traders are betting on a fresh round of quantitative easing (QE3) or some similar policy initiative more forceful than Operation Twist, the selling of short term securities to buy those with a longer term. This is seen as a potential salve to falling economic growth in the United States with unemployment rising. Exports to the U.S. are very important for the economies of China and Brazil, particularly that of the People's Republic.

About 40% of China's GDP is based on exporting to the United States and Europe. Much of the Brazilian economy hinges on exporting iron ore and other products from Brazil. As Europe is in a recession, a strong demand for goods from the People's Republic is critical for both the Brazilian and the Chinese economies.

To stimulate the demand from the United States needed for the economic health and real estate sector of  of China and Brazil, more help is needed from central banks. Bernanke has promised to maintain a low interest rate environment until at least 2014. As these low interest rates make homes more affordable by keeping mortgage costs down, home builders benefit.

But Gafisa and Xinyuan Real Estate need strong local economies. The entire international real estate sector does: low interest rates can only do so much. For that, demand from the U.S. must be strong so the export sector in China and Brazil can provide the jobs needed for workers to buy homes.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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