Lifting Chinese home puchase restrictions fails

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From BofAML’s excellent David Cui:

Housing market, still a key risk in 2H
Many in the market expect housing sales volume to recover in 2H, helped by a loosening of home purchase restriction (HPR) and mortgage policy, among others…Our conclusion: it’s still debatable whether the removal will have any sustained impact on local volumes (on balance, probably not) but it’s reasonably clear to us that the impact nationally is weak at best.

Soufun provides some weekly transaction volume data on 89 cites; of the 89, 45 had/have HPR; of the 45, 33 had loosened HPR in recent months; of the 33, 27 have sufficient data for us to analyze. For these 27, we assign the week when HPR is reported to have been loosened as W0 (subsequent weeks as W1, W2 etc.) and compare their transaction volumes week over week (WoW), period over period (PoP, trailing four weeks over the proceeding four weeks) and year over year (YoY, on a trailing four weeks basis). If a city’s transaction jumped in a week prior to when the loosening became known, we date the jump-week as W0, assuming that media report was late. We calculate a simple (not weighted) average to gauge the trend.

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Some ST impact but sustainability questionable
In general, it seems to us that the positive impact of HPR loosening starts to wane by W7 and has largely disappeared by W9 (Chart 2-4). The caveat to our assessment is that the sample base beyond W3 is small: W1-W3, 23+ cities; W4, 14; W5, 11; W6-7, 6; W8, 5; W9, 3. Anyhow, volume volatilities in recent weeks for cities with HPR loosened and for those without appear to be within a normal range, and by the week of Aug 24th, weekly sales trends of these two camps had largely converged (Chart 5).

Little impact on national volume
The 47 cities with HPR accounted for roughly a quarter of national sales in 2013. The rest of the housing market should be little impacted by the HPR adjustments (other than some short term sentiment boost as people perceive government support). Moreover, there may be volume cannibalization as investors move into cities that have just relaxed HPR, away from those with no HPR. Unfortunately, we do not have weekly national sales data. On a monthly basis, YoY growth has been persistently negative since March, with the Jun respite likely due to mid-year reporting by developers (Chart 6). If historical housing price vs. volume pattern holds, we believe YoY transaction volume nationwide will likely head south for the rest of the year.

Uh oh.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.