Hong Kong’s private market housing price index rose to 340 points in September, according to data from the Rating and Valuation Department.
The housing price index has been on the rise for 18 straight months, and set a new record for the 11th consecutive month. However, various indicators show that the housing price rally has run out of steam.
The Centa-City Leading Index hit a record high of 161.36 points on Aug. 27, but it has shown little momentum to rise further in recent months. The index eased to a 22-week low of 158.72 points on Oct. 29.
Although the red-hot sales of new housing offers have hogged the headlines in recent months, the year-on-year change in the value of 12-month new home sales has actually started to fall off after hitting a peak of 80 percent in July.
The gauge has dropped to 55 percent by the end of September, indicating that growth in new home sales is moderating.
Historical data shows that whenever the gauge soars above 90 percent, the market purchasing power will become stretched. As a result, the housing price rally will slow down in the following months or even head south.
That means the housing market is now at an inflection point – unless the gauge rebounds again shortly as we’ve seen in September 2007.
Also, historical data on newly originated mortgage loans’ value and housing prices shows that they tend to move in opposite directions. Whenever the newly originated mortgage loans double in value year on year, home price rally would cool off.
Having more than doubled, the newly originated mortgage loans’ value started to fall off in July. During the period, housing price also showed signs of peaking.
Historical data shows that once the trend has reversed, newly originated mortgage loans may tumble by as much as 50 percent or even more before starting another round of gains. That means the housing market has quite a bit of room to cool down.
Nonetheless, it does not necessarily mean housing prices will tumble because the cooling-off could take the form of price adjustments. Consolidation can also be an extended period of housing prices moving sideways, given the still-low interests rates and ample market liquidity.
This article appeared in the Hong Kong Economic Journal on Nov. 9
Translation by Julie Zhu
[Chinese version 中文版]
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