Date
27 May 2017
The government usually moves to further tighten property policy about six months later if previous measures fail to cool the home market. Photo: HKEJ
The government usually moves to further tighten property policy about six months later if previous measures fail to cool the home market. Photo: HKEJ

Where to look for signs of a peak-out in home prices

Last week, I argued that the narrowing price gap with blue-chip housing estates and the rising down payment suggest the starter home boom may soon be over.

However, that does not necessarily mean housing prices in Hong Kong will fall off the cliff immediately. So, when will the frenetic home market hit its peak?

I will try to answer this question based on the pattern of property curbs, the transaction value of new homes and the market breadth of home prices.

The Hong Kong government has unveiled eight rounds of counter-cyclical measures since 2009. Nevertheless, these measures have failed to tame runway home prices.

But there is an obvious pattern in the launching of new housing curbs over the years — the government usually moved to further tighten its property policy about six months later after previous measures failed to cool a housing price rally.

We’ve seen that Hong Kong’s secondary housing prices continued to surge despite the new stamp duty introduced in November last year. It’s very likely a new round of cooling measures will come later this year, which may trigger a cyclical correction.

The new-home market is also a useful barometer.

Rising home prices typically correlate with higher activities in the new-home market as policy curbs often reduce supply in the secondary market and push buyers to buy from the primary market.

The 12-month new-home transaction value now accounts for more than 40 percent of total market transactions compared with 21 percent in early 2010.

Prices of new homes have been rising. Historical data shows that the home price uptrend usually reverses within several months after the year-on-year growth of 12-month new-home market transaction value reaches 90 percent or even 150 percent.

This may happen around the third or fourth quarter this year.

Also, based on the relationship between housing prices and the housing market breadth indicator, which measures the portion of housing estates in which the 10-week unit price moving average is above the 50-week moving average, housing prices may reach the peak in the third or fourth quarter this year.

This article appeared in the Hong Kong Economic Journal on Mar. 23

Translation by Julie Zhu

[Chinese version 中文版]

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RT/RA

Hong Kong Economic Journal chief economist and strategist

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