CASS: Third and Fourth Tier Housing Inventory Still Grim, Prices May Tumble in 2H 2016; Or Not

Originally posted 10:02 AM 2015/12/03

CASS has a decent track record with their forecasts. Last year, the forecast was Home Prices to Decline, Purchase Limits to End. First-tier cities have recovered and buying restrictions have been completely canceled in some provinces.
"The first- and second-tier cities have entered a relatively oversupply period. Home prices would continue to drop and restrictions are expected to be eased completely," said Zou Linhua, a researcher with the National Academy of Economic Strategy, under the CASS.

...First- and second-tier cities are expected to lead the recovery by the second half of 2015. Smaller cities would see the recovery in the second half of 2016, the report said.
CASS is as close to an official forecast that will come out of China. Even if it is wrong, this is what top officials in China are thinking, or being advised to consider.

So it pays to sit up and take notice when CASS says home prices could cliff dive in the second half of 2016.
said after one of the fastest rises in home prices, there may be a wave of cliff-style fall after the second quarter of 2016; but real estate investment will hopefully slowly recover and enhance economic growth.

...It reports that in 2016, as the housing market picks up, so will basic instability, greater risk volatility, bifurcation will become more serious. The absence of significant changes in the overall economic trends and no major initiatives introduced, in view of commodity housing sales in 2015 close to the peak in 2013, and needs to improve significantly the release of relatively weak commodity housing sales growth, relieve pressure on the inventory is limited.
The report says real estate investment is contributing nothing to GDP growth now, shaving 0.21% off headline growth.

Despite the spike in home sales, home prices, and widespread government efforts to support housing, the report says:
At the same time there's low inventory in first-tier cities and increasing sales and prices, the large inventory situation of third- and fourth-tier is still grim.

The report is not as negative as it sounds, though CASS itself uses the term of "cliff like" drop in prices. Shenzhen prices spiked after Q2 2015, first-tier prices also saw solid gains, and as I've shown in the posts on monthly housing data, most of the national price increase is in the first-tier. If first-tier prices stabilize and the lower tiers deteriorate, the year-on-year national price change could easily turn negative due to very tough comparisons.

Shorter CASS summary: the big rebound move in home price and sales increases has already occurred. The gap in fortunes between first- and second-tier real estate, and third- and fourth-tier, will likely widen in 2016.

Sina: 社科院:明年二季度后房价或出现断崖式下跌

Update: iFeng has the same story posted twice, one the same story, but with another in the top headline spot with a totally different spin. 社科院:房价崩盘可能性极低 建议减免住房交易税 (Home Price Crash Unlikely)
The property market forecast for 2016, "Report" analysis, said China external conditions are within the property market are not optimistic. From the external environment, the slowdown in economic growth, financial market instability increased internal conditions, the amount of housing prices as the city highlights first-line market has been fully released in 2015, the subsequent price increases fatigue. Both together determine the 2016 housing market is difficult to have good performance. However, due to macro-policy support, purchase the policy environment is very relaxed, low financing costs, the possibility of the collapse of housing prices low, market nor will there be a hard landing.

Update #2: A couple English language stories on this CASS forecast.

ECNS must have read the earlier version. Chinese home prices may plummet after Q2 next year: CASS
The report explains that buyer demand has been largely satisfied in 2015, which repeated a climax in transaction volume that appeared in 2013. As China's economy slowdown persists and home policies remain unchanged, the sector lacks future impetus to boost demand.

China Daily straightens out the propaganda message in a story that came out hours later. Think tank calls for new steps to support the housing market
A top Chinese think tank said that homeowners should be allowed to use their mortgage interest payments to lower their tax liability, and that costs associated with buying a home be slashed to support the market.

CASS has now also come out and said the "cliff dive" term is "imprecise." iFeng: 社科院澄清:“房价断崖式下跌”不准确

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