Home Price Decline Begins in June

No trend change in real estate prices, but prices were still rising in many cities in May. Now it looks like prices will be down month-on-month in almost the entire country when official government stats are out later this month.

China Housing Prices Fall for Second-Straight Month in June

Average new-home prices fell 0.5% in June from May, data provider China Real Estate Index System said Monday. Prices declined 0.3% in May from April, the first month-to-month decline since June 2012.

Out of the 100 cities surveyed, 71 showed a decline in home prices, up from 62 in May.

......Some of China's wealthiest cities are showing signs of strain. In Beijing, average new home prices fell 0.6% in June from May, a turnaround from a 0.7% gain in May from April. In the affluent southern city of Shenzhen, prices declined by 1.8%, extending a 0.9% fall in May, the survey said. In Shanghai, prices rose 0.3%, a turnaround from a fall of 0.4% recorded in May.

These numbers have a different magnitude than government statistics. For instance, the government reported new home prices increased 0.2% in Beijing in May. See May Home Prices: Accelerating Price Declines. I put weight on the trend, not the magnitude of the change.

In that post, I said April-May would likely mark the peak of the housing market, at least in the short-term. This appears confirmed based on the trend in June data. Imagine throwing a ball into the air. As it reaches its highest point, its acceleration slows rapidly and at the very peak, it appears suspended, weightless for a fraction of a second as the force of the toss and gravity hit a momentary equilibrium. That was the Chinese housing market in April and May. In June, the downside acceleration started.

Since summer is not a good time for real estate in China, prices should slump at least until the September/October period. Prices could drop substantially in July and August if some small developers rush to recoup capital ahead of the competitive sales season. Since September looms large and many buyers have the "wait and see" attitude, it may require large price cuts to move small developer property this summer.