The Centa-City Leading Index (CCL), a gauge of Hong Kong’s secondary housing prices, bottomed out in the first quarter.
The pace of recovery picked up gradually and has been accelerating since August, lifting prices to the highest level this year.
The recovery has been led by new-home sales and sales of starter homes.
Such pattern has been prevalent since 2012 when surging property prices left many homebuyers with no choice but to focus on smaller flats they could still afford.
People also tend to prefer new projects that offer various incentives and accommodative financing arrangements.
By the end of August, new-home sales accounted for 44.5 percent of transactions, the highest since March 2004.
How long will this round of rally last?
There are a few things investors should watch.
First, based on historical data, when the performance of small and medium-sized flats lags that of big units, the market tends to peak out.
Second, if the cumulative 12-month new-home sales start to ease, that could also be a negative sign.
So far, new-home sales, both in volume and value, have been improving since bottoming out earlier this year.
A sustained rise in the yield of US long-term bonds will also be negative for Hong Kong properties.
Long-tenor government bond yields in the US and other developed markets have posted a modest recovery recently.
If that goes on, pressure will build in the housing market.
In fact, we’ve already seen HIBOR (Hong Kong interbank offered rate) inch higher lately.
One more technical signal is the market breadth indicator.
The indicator surged to 90.7 percent on Sept. 4, meaning the per-square-foot price of 107 housing estates out of a total of 118 tracked by CCL were above their 10-week moving average, a pretty overbought level.
Overall, home price gains may slow in the near term, or even stage a mild, brief pullback.
This article appeared in the Hong Kong Economic Journal on Sep 22
Translation by Julie Zhu
[Chinese version 中文版]
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