The Hang Seng Index has been heading south since hitting a peak of 33,484 points on Jan. 29. It tumbled to a low of 26,871 points on Aug. 16, down 19.7 percent from the peak. However, secondary home prices rallied more than 10 percent over the same period.
The stock and housing markets have performed divergently so far this year, yet historical data shows that the two markets tend to move in tandem over the long run. The Hang Seng Index and the Centa-City Leading Index have an average coefficient of 0.75.
Historically, when the gap between the annual change of the two markets reaches 20 percentage points, which means Hang Seng Index lags behind the secondary housing price by 20 percentage points over the last 12 months, the secondary home market would move into a consolidation period.
Currently, that gap stands at 17.4 percent, close to the 20 percent mark., indicating a consolidation period could arrive soon.
The gap in price movements of flats in remote districts and the overall secondary home market is another metric worth watching.
For instance, the price difference between Kingswood Villas in the New Territories and the overall market is a useful gauge.
Historically, when the 10-week price difference widens to 10 percentage points, the housing market would usually level off or move sideways within six months.
Currently, this gap has already hit 11 percent, which again suggests the secondary housing market could be running out of steam.
Another good indicator is a market measurement based on secondary home prices in 118 housing estates.
In the second half of last year, more than half of the 118 housing estates traded at a per square foot price that was lower than 10-week average. The ratio then climbed to over 70 percent but has been weakening again in the past two weeks. This is another sign of softening.
Historical data shows that when the ratio drops below 40 percent, the housing market will see a meaningful correction. The ratio is now around 61. 7 percent.
In sum, numerous indicators are pointing to softer or at least range-bound secondary home prices in the near term.
This article appeared in the Hong Kong Economic Journal on Aug 30
Translation by Julie Zhu
[Chinese version 中文版]
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