23 October 2016
Following a correction since September last year, home prices in Hong Kong have shown signs of a mild rebound in recent months. Photo: HKEJ
Following a correction since September last year, home prices in Hong Kong have shown signs of a mild rebound in recent months. Photo: HKEJ

Starter homes to lead modest property market rebound

The Centa-city Leading Index (CCL), a gauge of secondary housing market in Hong Kong, has fallen back since mid-September last year.

The index has shed 13.2 percent, in line with my earlier forecast for a 10 to 15 percent correction in the first phase.

That said, housing prices have shown recovery signs in recent months. As of July 17, the average secondary home price has rebounded by 2.4 percent from the trough.

Small and medium flats or the so-called starter homes have again become the driving engine of the home price uptick.

Earlier, the price ratio between large flats and small units started to trend downward since early 2012, which means that starter homes outperformed large flats in the last property market boom.

Local buyers snapped up smaller apartments amid tighter regulations. The buying, fueled by abundant liquidity, has distorted prices of the smaller flats.

As a result, the smaller flats suffered the most from market correction since the third quarter of last year.

This saw the price ratio between large flats and small flats picking up since mid-August.

However, the ratio started to fall back again since the second quarter this year, in a sign that starter-home prices have bounced back and outperformed the big units.

Now, can we say that the secondary housing market has confirmed an uptick trend in the “M-shape” cycle?

To get some answers, we should take a look at three market breadth indicators.

Less than 20 percent of 118 monitored housing estates in the city recorded housing prices above the 10-week moving average between November last year and early April this year.

That means prices of 80 percent of the housing estates remained below the 10-week moving average.

Nevertheless, the ratio started to rally since the second quarter, reaching 65.3 percent as of now. Up to 77 housing estates have recorded prices above 10-week moving average, the highest since the peak on September 20.

The ratio has yet to reach the key threshold of 70 percent, which is a sign that market bottoms out. In that sense, property is yet to bottom out but is close to that.

The three-month advance/decline line dived to a record low of minus 59 on February 21. That means 59 more housing estates showed price declines than price increases over a three-month period, indicating that the housing market was extremely weak at that time.

However, the advance/decline line has now rebounded to 12, the highest since the peak in September last year. We should watch closely whether the indicator will pass the key level of 20, which could be a sign of strength of the market recovery.

The ratio between housing estates with prices above 52-week low and prices below 52-week high has tumbled to the lowest level of minus 14.1 percent on March 13. But it started to bounce back thereafter as the property market stabilized.

The indicator remains far way from zero, which means the overall housing market has yet to confirm any upcoming huge rally.

So far, the market width indicator suggests that the rebound may be mild and that starter homes are likely to outperform.

This article appeared in the Hong Kong Economic Journal on July 28.

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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