China real estate faces big test

Here's a table from today's paper:

The above table is month-to-month changes in home prices for 70 major cities, the bottom year-on-year. The first column is rising home prices, the second unchanged, and the third falling.

You can see that prices were down YoY in June, but they were up from May. Lately, an explanation for the recent warmth in the real estate market is comments by Wen Jiabao saying the economy must now focus on stable growth. Bulls take the statement to mean Wen wants growth, therefore real estate policy will be eased. Instead, the government continues to stress that real estate policy will stay restrictive.

Nothing goes down in a straight line and June could easily be a blip on the way to larger losses, which is the most likely path. Real estate bulls were burned in 2011 when they ignored the government and if the recent burst is really driven by this false hope, it is just a flashback, a momentary return of bullish excitement before the bear returns with greater force.