Date
25 March 2017
As the property market bounced back along with the stock market, long queues reappeared at new project launches. Photo: HKEJ
As the property market bounced back along with the stock market, long queues reappeared at new project launches. Photo: HKEJ

Why the property market recovery won’t be just a blip

The overall housing market has shown signs of strong recovery as indicated by the secondary housing price index and new home sales. What has been underpinning this uptrend? Is it going to sustain?

The Centa-City Leading Index (CCL), a gauge of the secondary housing market, has started to pick up since the end of the first quarter.

The index has already reached a year-to-date high and the pace of home price gain has been accelerating as well.

For example, the overall CCL and the sub-index for the New Territories rose by 1.62 percent and 2.51 percent respectively from Aug. 8 to Aug. 14, the biggest weekly uptick in 71 and 67 weeks respectively.

Also, market sentiment has improved considerably. The housing market prosperity index once slumped to -0.7 in late June this year. Then it started to spike since then and surged to 1 at present, the highest since 2010. That reflects an optimistic sentiment in the housing market.

What has triggered this strong uptick? The housing market sentiment started to bounce back from late February, when the Hang Seng Index hit the bottom. The recovery of the stock market is hence a key factor.

In fact, the Hang Seng Index and secondary housing price have moved in tandem historically.

That has proved true again this time. The Hang Seng Index has already gained over 20 percent from its trough in early February.

Only 5.1 percent of the 118 monitored housing estates in the city recorded housing prices above the 10-week moving average earlier this year.

This metric has dropped to such level only twice since 2000, first time in early 2000 when the internet bubble burst and then in late 2008 amid the global financial crisis.

Meanwhile, the three-month advance/decline line has plunged to a record low of -59 in mid-February, meaning the number of estates showing price declines outnumbered those showing price gains by a factor of 59, which is another extreme situation.

These indicators show that the housing market was extremely over-sold at the beginning of the year, laying the foundation for the current rebound.

Will the uptrend last? We can answer the question by looking at the two indicators again.

Nearly 80 percent of the 118 monitored housing estates in the city recorded housing prices above the 10-week moving average. It has managed to break 70 percent, a key resistance level in determining whether the rally can sustain.

Also, the three-month advance/decline line climbed above 20, which indicates the recent market rally may not be short-lived.

This article appeared in the Hong Kong Economic Journal on Aug. 25

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

CG

Hong Kong Economic Journal chief economist and strategist

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