14 November 2018
Hong Kong's secondary housing market appears to be stabilizing after a slowdown since the third quarter of 2015. Photo: HKEJ
Hong Kong's secondary housing market appears to be stabilizing after a slowdown since the third quarter of 2015. Photo: HKEJ

Starter-homes underperform the overall HK housing market

Home prices in Hong Kong’s secondary market started coming off a peak since the third quarter of last year. The market has, however, shown signs of stabilizing recently.

Now, it’s time to review whether the starter-home market has gone through even greater pressure.

The Centa-city Leading Index has tumbled to a low of 127.46 points on March 27, down 13.25 percent from the historical high of 146.29 points hit on September 13 last year. However, the index has edged up for two straight weeks recently.

And various districts, barring some like Kowloon and New Territories East, have seen prices bottoming out.

A technical analysis of market breadth indicator shows that secondary housing prices have seen some rebound after falling into the over-sold range.

At the end of January, only 6 housing estates, out of the city’s 118 housing estates, had prices above the 10-week moving average. 

I noted last month that the ratio is extremely low, a level that is similar to that seen in the wake of the dotcom bubble burst in 2000, or during the financial crisis in late 2008.

However, the ratio has started picking up, hitting a six-month high of 31.4 percent recently, in a sign that secondary home prices are staging a swift rebound.

The advance/decline line (A/D line) dropped to a record low of negative 59 on February 21, which means 59 more housing estates recorded price declines over the last three months.

Since then, the A/D line started to pick up, sending a signal of price recovery.

It appears that housing prices will bounce back given the rising market breadth indicators. The rally sustenance will depend on the strength of the uptick.

Looking at starter-homes, the segment has suffered the most during the correction.

Also, the scatter plot of average price and price change showed that over the last seven months, housing estates with lower average price have posted deeper corrections between September 13 and April 10.

That is evidence that starter-homes, usually with smaller areas and lower average price, did suffer more.

It does prove my earlier contention that starter-homes or smaller flats were facing more downside than the overall market.

This article appeared in the Hong Kong Economic Journal on April 21.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist

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