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Burst Chinese Housing Bubble Leads To First Annual Price Decline Since 2012; Prices Drop In Record 69 Cities

It has been over six months since the Chinese housing bubble has popped. What's worse, as overnight housing numbers out of China confirmed, the government has so far failed to contain the fallout, and according to the National Bureau of Statistics, which is anything but, after a fifth straight monthly decline, Chinese home prices have now wiped out all price gains in the past year. This was immediately spun as bullish by media outlets and sellside experts as "raising expectations the government will have to implement more economic support measures to cushion the blow." I.e., buy stocks because central banks will push risk prices artificially higher yet again. In other words, bad is still good and failure continues to be success.

According to the NBS, average home prices in 70 major Chinese cities were down 1.3% in September from a year earlier, the first such drop since November 2012.

As compiled by Reuters, new home prices fell month-on-month in a record 69 of the 70 major cities, up from 68 in August. Only the southern city of Xiamen saw stable prices last month, National Bureau of Statistics (NBS) data showed.

The worst performance was in the eastern city of Hangzhou, where prices sagged 7.6 percent in September from a year before.

The decelerating property market, which accounts for about 15 percent of China's economy, has crimped demand in 40 sectors ranging from steel to cement and furniture.

Actually, no. According to SocGen, "the aggregate exposure of China’s financial system to the property market is likely to be as much as 80% of GDP." Which is why as we said in May, "this is not a sector that can go terribly wrong if China wants to avoid a hard landing."

But much more importantly, when it comes to net worth, what the stock market is to the US, housing is to China, as we have also shown previously.

 

It is in this context that one can't help but laugh at the following consensus forecast that has just China and the US as accountable for virtually all the growth in 2015:

Because until and unless China manages to arrest its tumbling housing market, which now is a net drag on net worth over the past year, one can kiss about $1 trillion in "GDP growth" in 2015 goodbye.

Some other observations on the Chinese housing market. From Reuters:

"The property downturn is still the main drag on the economy," Wang Tao, an economist at UBS in Hong Kong, said in a note.

 

"The negative impact of the ongoing property downturn is being felt not only in heavy industry, but also in manufacturing investment."

 

The slowdown in the housing market followed GDP data showing the economy grew at its slowest rate since the 2008/2009 global financial crisis in the September quarter, adding to worries that it will drag on global growth.

 

Yu Bin, a senior economist at the Development Research Centre (DRC), the cabinet's think tank, said on Friday it expected China's economy would grow by 7.4 percent this year, slightly below the government's target of 7.5 percent. That would be the slowest pace in 24 years.

And some more from Bank of America:

Prices of new commodity residential properties for 70 medium-to-large-sized cities surveyed by the National Bureau of Statistics (NBS) declined by 1.2% yoy in September compared with 0.5% growth in August. The number of cities with higher home prices mom was 0 in September, down one from 1 in August, while the  number of cities with lower home prices mom was 69 in September, up one from 68 in August. Moreover, the number of cities with lower home prices yoy jumped to 58 in September from 19 in August.

 

In September, Soufun’s 100-city average new home price index rose by 1.1% yoy compared to 3.2% in August. Divergence in home price growth narrowed slightly among the different tiers of cities. September new home price growth was 5.4%, - 0.4% and -2.8% yoy, respectively for Tier-1, Tier-2 and Tier-3 cities, down from 8.0%, 1.1% and -1.3% yoy in August.

 

National average sale prices (ASP) of new homes was RMB5,987/sqm in September, down by 0.6% yoy compared to 1.1% decline recorded for August

 

 

Vacant residential GFA waiting for sale increased by 6.3 mn sqm in September, up from 5.9 mn sqm in August. According to the NBS data, completed unsold residential inventory stood at 376mn sqm, which is equivalent to 4.0 months of inventory, based on the average monthly sales volume in the past 12 months.

 

Perhaps it is time for China to take a page out of Europe's playbook and to add the price of hookers and cocaine when calculating the blended average price of an apartment...