China’s housing market, already beleaguered by a prolonged downturn, shows no signs of a swift recovery, according to Haibin Zhu, JPMorgan’s chief economist for China. Zhu’s recent comments on CNBC’s “Squawk Box Asia” underscore the ongoing struggles in the sector, suggesting that home prices are unlikely to stabilize until at least 2025.
Despite various government measures aimed at reviving the housing market, these initiatives have proven to be inadequate. Zhu noted that the “housing market crash is still not over yet,” emphasizing that the government’s stimulus efforts have fallen short of expectations.
Recent data from China Index Academy highlights the extent of the crisis. The average price for new home sales across 100 cities saw a slight increase of just 0.11% in July, a further deceleration from June’s 0.13% growth. In contrast, resale home prices fell by 0.71% from the previous month. Year-over-year comparisons paint a more troubling picture, with new home prices dropping 1.76% and resale prices plummeting 6.89%.
In response to the ongoing crisis, China is considering a significant policy shift to address the housing market’s woes. Bloomberg reported that the country is exploring a plan to lower borrowing costs for homeowners by facilitating refinancing on up to $5.4 trillion in mortgages. However, experts remain skeptical about the efficacy of this measure.
Winnie Wu, chief China equity strategist at BofA Securities, expressed doubts about the proposed refinancing plan’s ability to rejuvenate homebuyer sentiment and overall consumption. Wu pointed out that while lower mortgage rates might theoretically stimulate consumption, they could also lead to reduced deposit rates. This, in turn, would diminish interest income on household savings, potentially offsetting any gains from the refinancing measure.
JPMorgan’s Zhu concurred, arguing that the proposed policy would primarily benefit existing homeowners rather than stimulate demand for new homes. “Even if the mortgage refinancing policy materializes, it’s not a policy to revive the housing market,” Zhu stated. He criticized the measure as ineffective in addressing the root issues and merely a stopgap solution that does not tackle new home demand.
Wu also questioned the broader implications of such policies, suggesting that simply cutting rates and squeezing banks’ margins might not be the optimal strategy. Instead, she advocated for creating a positive feedback loop to counteract the downward spiral in the housing market.
As China grapples with these challenges, the country’s housing sector continues to face significant headwinds. With the current economic climate and government measures struggling to make a meaningful impact, the road to recovery for China’s housing market appears long and uncertain.
I am Aparna Sahu
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