Another tantalising signal that the slide in China’s housing sector is bottoming out with news that the year long fall in house prices slowed again in May.
April had seen signs of a bottoming out, but they became a bit more pronounced in May, thanks to the impact of interest rate cuts and a freeing up of more money for banks to lend – plus changes in official home ownership and deposit policies.
But there is a long way to go before calling an end to the slide with prices still negative in 69 of the 70 major cities over the past year as the trend to rising prices in Shanghai, Beijing and other major eastern cities has yet to be fully felt in cities further west in China where demand remains depressed.
But May saw new home prices rise in an increasing number of China’s 70 biggest cities and of all the monthly data China released for May, this is probably the most positive, given the way the slump in the housing sector has helped slow growth and demand across much of the Chinese economy in the past year to 18 months.
Data from China’s National Bureau of Statistics showed that of the 70 large and medium-sized cities in the monthly survey, new home prices rose in 20 in May from the previous month, up from 18 in April. Another 43 cities reported month-on-month price falls, down from April’s 48. Prices were steady in seven other cities.
As a result, new home prices rose by 0.2% in May from April, the first rise since May 2014, according to Reuters and the Wall Street Journal.
On a year-over-year basis, house prices fell 5.7% from April’s 6.1% drop. The index first showed a year-over-year fall in September of last year.
China’s central bank cut interest rates for the third time in six months in May and lowered the amount of money banks have to set aside as reserves, which boosted the amount of money available to be lent.
Some economists reckon that the current stock market boom has helped push up house prices in some cities (the so-called wealth effect).
Economists say the continuing overhang of unsold houses and new developments means a strong rally in home prices won’t emerge (if it does) until well into 2016.
Official data last week showed residential inventory (overhang) in May was 21.9% higher than a year ago, though it was down 0.2% from April.
Property investment growth slowed to 5.1% in January to May from a year earlier, official figures last week showed, while the floor area of property sold dropped just 0.2%, narrowing from a 4.8% decline in January to April, according to Reuters. That is another small positive.
Dow Jones reported “the improved appetite for homes appears to be spilling out of the first-tier Chinese cities such as Beijing, Shanghai and Shenzhen into major second-tier cities. Third- and fourth-tier cities, plagued by hefty inventories, are still struggling with falling sales and prices.”
Bureau of Statistics figures showed new home prices in Shenzhen (home of the very speculative, tech-dominated stock exchange) recorded a second consecutive annual rise, up 7.5%, up from 0.7% rise in April.
Beijing and Shanghai both saw annual falls of 2.3%, while Guangzhou recorded a fall of 4.8%. But all three cities saw month on month rises from April of 1.1%, 2.2% and 1.4% respectively, another small positive.
