Shanghai November Home Sales Off to Bad Start

As good as the October data was for the housing market, it doesn't yet signal a shift, only a potential shift that must be confirmed with improved data in the following months. Markets don't go down in a straight line and pullbacks are normal. Government intervention pulls marginal buyers off the sidelines, cannibalizing future demand. This can lead to a rebound or stabilization in the market if the policy impact offsets the trend, but it can also result in a seeming rebound that quickly fades as the larger trend reasserts itself. 

I usually ignore weekly data, but this data out of Shanghai landed at the top of the headlines today. New home sales (measured by area) plunged 48.7% from the last week of October to the first week of November. Existing home sale transactions plunged 31.8%. 

On the optimistic side, home loans in Shanghai are still expensive. On the pessimistic side, inventory in Shanghai has been trending lower.

This news made headlines because only a week or two ago, developers were talking of price increases, if not actually raising prices, confident that the market had turned. If this isn't a one-week phenomena or quirk of the data, pessimism will come roaring back as developers realize they must cut prices again to move inventory.

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