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Housing Price at Tipping Point

Dec 30-2019   



 

An unusual and rare signal presented itself in November: housing rent grew by 0.9% month-on-month, lower than the 1.0% of non-food CPI. To put it in perspective, the growth rate of housing rent has outstripped non-food CPI by over 40% since 2001, said Prof. Song Guoqing of the NSD at the recent National Development Forum.

 

Real housing rent can be calculated by subtracting non-food CPI from nominal housing rent. Official data show that the growth rate of real housing rent has been losing steam since 2016 and has turned negative in recent months.

 

In previous years, farmers surged into the cities for work and drove up housing rent. Such a labor transfer cycle has come to an end. Real housing rent is showing limited correlation to short-term economic performance and has more to do with long-term factors such as the pace of urbanization and expanding living space per capita.

 

Housing price also reacts sensitively to the real interest rate, which stands at around 5% now. Contrasting this financing cost with real housing rent would hand a landlord a loss of 3-4% per year. What, then, keeps the housing price resilient in the face of the disappearance of long-term rising trend? It might be because buyers are increasingly relying on their own capital – which struggles to find better investment channels - and not loans. The buildup of housing loans as a share of the GDP has manifested a downward trend since 2016.

Housing Price at Tipping Point

Dec 30-2019   



 

An unusual and rare signal presented itself in November: housing rent grew by 0.9% month-on-month, lower than the 1.0% of non-food CPI. To put it in perspective, the growth rate of housing rent has outstripped non-food CPI by over 40% since 2001, said Prof. Song Guoqing of the NSD at the recent National Development Forum.

 

Real housing rent can be calculated by subtracting non-food CPI from nominal housing rent. Official data show that the growth rate of real housing rent has been losing steam since 2016 and has turned negative in recent months.

 

In previous years, farmers surged into the cities for work and drove up housing rent. Such a labor transfer cycle has come to an end. Real housing rent is showing limited correlation to short-term economic performance and has more to do with long-term factors such as the pace of urbanization and expanding living space per capita.

 

Housing price also reacts sensitively to the real interest rate, which stands at around 5% now. Contrasting this financing cost with real housing rent would hand a landlord a loss of 3-4% per year. What, then, keeps the housing price resilient in the face of the disappearance of long-term rising trend? It might be because buyers are increasingly relying on their own capital – which struggles to find better investment channels - and not loans. The buildup of housing loans as a share of the GDP has manifested a downward trend since 2016.