Cross-posted from Investing in Chinese Stocks.
CASS has a decent track record with their forecasts. Last year, the forecast was Home Prices to Decline, Purchase Limits to End. First-tier cities have recovered and buying restrictions have been completely canceled in some provinces.
“The first- and second-tier cities have entered a relatively oversupply period. Home prices would continue to drop and restrictions are expected to be eased completely,” said Zou Linhua, a researcher with the National Academy of Economic Strategy, under the CASS.
…First- and second-tier cities are expected to lead the recovery by the second half of 2015. Smaller cities would see the recovery in the second half of 2016, the report said.
CASS is as close to an official forecast that will come out of China. Even if it is wrong, this is what top officials in China are thinking, or being advised to consider.
So it pays to sit up and take notice when CASS says home prices could cliff dive in the second half of 2016.
said after one of the fastest rises in home prices, there may be a wave of cliff-style fall after the second quarter of 2016; but real estate investment will hopefully slowly recover and enhance economic growth.
…It reports that in 2016, as the housing market picks up, so will basic instability, greater risk volatility, bifurcation will become more serious. The absence of significant changes in the overall economic trends and no major initiatives introduced, in view of commodity housing sales in 2015 close to the peak in 2013, and needs to improve significantly the release of relatively weak commodity housing sales growth, relieve pressure on the inventory is limited.
The report says real estate investment is contributing nothing to GDP growth now, shaving 0.21% off headline growth.
Despite the spike in home sales, home prices, and widespread government efforts to support housing, the report says:
At the same time there’s low inventory in first-tier cities and increasing sales and prices, the large inventory situation of third- and fourth-tier is still grim.
The report is not as negative as it sounds, though CASS itself uses the term of “cliff like” drop in prices. Shenzhen prices spiked after Q2 2015, first-tier prices also saw solid gains, and as I’ve shown in the posts on monthly housing data, most of the national price increase is in the first-tier. If first-tier prices stabilize and the lower tiers deteriorate, the year-on-year national price change could easily turn negative due to very tough comparisons.
Shorter CASS summary: the big rebound move in home price and sales increases has already occurred. The gap in fortunes between first- and second-tier real estate, and third- and fourth-tier, will likely widen in 2016.
Sina: 社科院：明年二季度后房价或出现断崖式下跌
Edit: Remember that third and fourth tier cities constitute three-quarters of construction volumes which in turn consumes almost half of Chinese steel. This has iron ore disaster written all over it.
