Housing market tends to be local.  It’s rare to see a nationwide price decline.  The recent US housing bubble is an exception and often considered a black swan.

People have been talking about China’s housing bubble for a few years now (see my previous post on China’s housing bubble debate), but where exactly is the bubble located?

The recent NBER research sheds some light on the issue.  The graph below shows the price-to-income ratio of China’s eight major cities, from 1999 to Q1 of 2010.

(click to enlarge, source: NBER w16189)

Beijing and Shenzhen are clearly in bubble-shape — the typical and familiar parabolic surge in price, and they are followed by Shanghai and Hangzhou.

Now, let’s have some comparative perspective.  How the same ratio compares to the major cities in the United States.

The graph below (courtesy of Infectious Greed) shows the price-to-income ratio of US cities. San Francisco, Los Angeles, Seattle were among the highest.

(click to enlarge)

At the peak of the housing bubble between 2006-07, the same ratio for San Francisco, the highest among all US cities, was around 11.   In contrast, Beijing has a ratio of 18, and Shenzhen at astonishing 22.