January’s rebound in home prices across China appears to have been short-lived as the average price of new housing sold in China during February slid by 0.24 percent nationwide compared to the previous month, according to a recent survey.
In its latest monthly report, the China Real Estate Index Academy, found that the average price of new homes sold in February fell to RMB 10,539 ($1,714) per square metre across the 100 cities surveyed. The price was a 3.84 percent decline compared to the same month last year.
The average monthly change in housing prices has been hovering close to zero in the past several months, but during February the market was faced with not only the ongoing buyer skepticism about new home purchases, but also the seasonal lull caused by China’s lunar new year holiday, which was celebrated from February 18th to 24th. The holiday began during January last year.
Among the cities surveyed, only 39 reported price increases, while 61 saw prices decline. During January, only 56 cities saw home prices fall, according to the Academy, which is a unit of online real estate platform Soufun.
Continued weakness in China’s real estate market is seen as a growing threat to the nation’s economy, and is one of the most common rationales cited for the central bank’s decision on Saturday to cut interest rates by a further 0.25 percent.
Market Outlook Pessimistic
In its report, the Index Academy said that it expects continued downward pressure on home prices in China, particularly in light of the large inventory of unsold homes that developers have built up. According to the National Bureau of Statistics, that backlog of available new homes reached a record 40 million square metres by the end of 2014.
The drag that China’s housing downturn has put on the nation’s economy, which slid to 7.4 percent GDP growth last year and missed its growth target for the first time in 15 years, appears to be a growing cause for concern with the nation’s policy makers.
Saturday’s move by the People’s Bank of China, which cut the one-year lending rate to 5.35 percent and the one year deposit rate to 2.5 percent followed after the bank introduced similar rate cuts at the end of November.
And the government can be expected to reach for further monetary easing, if China’s leading official think tank can be believed.
In an interview with the China Daily published on Saturday, the same day that the interest rate cuts were announced, Li Yang, vice-president of the Chinese Academy of Social Sciences predicted that monetary easing would be a continuing trend over the next two to three years as the government seeks to acclimate the country to what it calls the “new normal.”
“A moderate easing of monetary policy could avoid a sharp rise in unemployment or social instability and is necessary at this point,” Li said.
While the current plans for quantitative easing in China appear to be more limited than the campaign undertaken in 2009 during the financial crisis, the result of the easier credit provided then was a rapid rise in housing prices that led to what many perceive as asset bubbles.
Before any rebound in housing prices occurs during this cycle, however, most analysts expect growth in China’s housing prices to continue to be flat on a nationwide basis until the inventory of unsold homes is reduced.