Date
30 March 2017
Since new home transaction values have dropped by only 20 percent, the housing market correction has further to go. Photo: HKEJ
Since new home transaction values have dropped by only 20 percent, the housing market correction has further to go. Photo: HKEJ

Hong Kong housing market shows signs of bottoming out

After falling from their peak in the third quarter of last year, Hong Kong’s housing prices are showing signs of stability this year.

The Centa-City Leading Index tumbled by 11.1 percent from the peak, in line with my forecast in September of a drop of 10-15 percent.

Now, there have been signs of a bottoming out after the Lunar New Year holiday.

The price decline from the peak narrowed to 10.3 percent by Feb. 28.

It’s hard to judge from one or two weeks of data whether the market will bottom out.

The average transaction price in the secondary market in 100 major estates has usually rebounded after a 3-8 percent drop during correction cycles since 2003.

One exception is the 2008 financial crisis, during which the gauge bottomed out after slumping by 14.5 percent.

That benchmark had already fallen by 8.1 percent last month.

So, housing prices are very likely to rebound soon, unless we see another financial crisis.

In the meantime, prices at less than 10 percent of the 118 housing estates stayed above their 10-week moving average from late last year.

The ratio dropped to 5 percent in late January.

We’ve only seen such a low ratio on two occasions over the last 15 years, one when the dotcom bubble burst in June 2000, and the other in late 2008.

That is to say, the indicator tumbled to an extremely oversold level.

But by the end of last month, the ratio bounced back to 22 percent.

Also, the difference between the number of 52-week highs and the number of 52-week lows for these 118 housing estates turned negative late last year.

By Feb. 21, the gauge plunged to a new low of minus 11 percent, the lowest since the 2008 financial crisis.

Bu it has also shown an uptick recently.

Over the last 15 years, housing prices usually bottom out when the downtrend in the indicator reverses, unless the housing market is in the middle of a lengthy consolidation or in a bear market.

However, it’s still too early to conclude whether the housing market will rebound.

New home transaction values peaked in late 2014 and May 2015.

Usually, the housing market hits bottom about six months after the value of new home sales slumps 50 percent.

So, since new home transaction values have dropped by only 20 percent, the housing market correction has further to go.

Going forward, we should watch these gauges closely, especially focusing on whether the ratio of secondary prices above their 10-week average can surpass 70 percent.

If not, housing prices may fall further after a temporary blip.

This article appeared in the Hong Kong Economic Journal on Mar. 10.

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

JZ/DY/FL

Hong Kong Economic Journal chief economist and strategist

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