As China's economy slows, real estate bubble looms Guo gestured to the wall behind his couch. His neighbor? He owns six apartments in this compound alone. Guo's friends, too, all own at least two homes each. "There is definitely a bubble," said Guo, whose homes have tripled in value in roughly a decade. As home prices have skyrocketed, many Chinese households have gone all in on real estate by pouring years of savings into buying as many homes as they can. But as the country's economy slows to its worst pace in years, China's dependence on real estate for growth - it's a bigger driver than even exports now - has put the government in a tough position. Allow prices to continue rising and help the economy in the near-term, but the real estate bubble gets worse. Cool things off, and the entire economy slackens too much. The nightmare scenario, though, is a bubble that bursts. A major drop in prices would ripple through the Chinese economy and potentially the rest of the world. Real estate investment comprised 13 percent of the country's GDP last year. The sector feeds steel, concrete and dozens of other industries. A downturn would also be devastating to the wealth of Chinese households. Urban housing stock made up 41 percent of Chinese household wealth in 2011, compared with 26 percent in the United States, according to Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics. Lower home values could make Chinese consumers rein in their spending, making it tougher for U.S. and foreign firms to sell their products here. The Chinese government has acknowledged that real estate prices have gotten too high, adding some rules in the last few years to limit how many homes people can buy and requiring people to put more money down. This helped bring prices down starting last year, though they edged back up this summer. These policies, though, have had a limited effect. Chinese homebuyers have been accumulating houses for years now, mainly because they have few options for safely stashing their savings. The stock market has lost money in recent years. People are wary of stashing money into savings accounts because low interest rates are not even keeping up with inflation. The obsession with real estate is also embedded in the culture. People are expected to own homes before they get married, and there is a deep faith that real estate is a fool-proof investment. Since private homeownership has only existed here since the 1990s, no one has ever seen first-hand what happens when housing prices start dropping. "Just like in the U.S., that's what the speculators thought in Vegas and Florida, that there's only one way to go but up," Lardy said. Expectations could change very dramatically.