Late last month, the People's Bank of China announced a further easing of mortgage requirements. This reflects a growing concern from policymakers and many analysts1 about the extent of the slowdown in the property market. Rightfully so – aggregate housing prices are in the midst of the sharpest correction in a decade, and it does not appear that we are the bottom as yet. Not only is the broad housing price index in nontrivial negative territory, but outright year-over-year price declines are broad-based, with 69 out of 70 cities in the widely-cited index published by the National Bureau of Statistics showing negative growth2. As we remarked in a previous piece, the Chinese housing market very likely due for a lengthy correction, but given the relatively low loan-to-value ratios and strong household balance sheets, a collapse is not in the cards. Therefore, incremental policy loosening from the current restrictive level is warranted.
Aggregate housing price index vs. number of cities recording housing price declines
Source: China National Bureau of Statistics
1. See our colleague Nicholas Lardy’s comments earlier today about risks in the China’s property market at the Peterson Institute’s Global Economic Prospects meeting, available here: /events/global-economic-prospects-spring-2015
2. The only city not in negative territory is Xiamen, which experienced exactly 0% growth.