China's attempts to "reign in" its credit and housing bubble (to "taper", if you will) and to deleverage its financial sector, so widely trumpeted over a year ago just before its banking system nearly locked up overnight, are rapidly becoming the biggest joke in finance, just after anything relatedd to the Fed of course. Sure enough, confirming that the reason for the epic surge in Chinese lending over the past few months (a topic we will touch upon later) was making sure that the all important housing bubble doesn't pop (at least not yet, recall: in China housing is a far more critical bubble than the stock market which is widely ignore by most as a "wealth effect" mechanism), was data released overnight showing how Chinese home prices reacted following the last few months of credit conservatism and destruction courtesy of the commodity funding deal rehypothecation scandal. In short: not good.
As summarized by Bloomberg, China’s new-home prices fell in a record number of cities tracked by the government as developers cut prices to boost sales volume. Prices fell in a record 55 of the 70 cities last month from May, the National Bureau of Statistics said in a statement today, the most since January 2011 when the government changed the way it compiles the statistics.
What's worse, and as can be seen on the chart below, prices in Shanghai and the southern city of Guangzhou fell 0.6 percent each from May, the biggest drop since January 2011, while they declined 0.4 percent in Shenzhen. Prices fell 1.7 percent in the eastern city of Hangzhou, the largest monthly decline among all the cities.
At the national level, China recorded a 0.48% sequential decline in home prices: the largest since at least 2010. And slamming the nail in the Chinese housing market, at least for now, is that the Average Sale Price dropping by 1.5% Y/Y, the biggest drop since Lehman!
Some more details from BofA:
Prices of new commodity residential properties for 70 medium-to-large-sized cities surveyed by the National Bureau of Statistics (NBS) increased by 4.3% yoy in June compared with 5.6% in May. The number of cities with higher home prices mom was 8 in June, down 7 from 15 in May, while the number of cities with lower home prices mom was 55 in June, up 20 from 35 in May.
In June, Soufun’s 100-city average new home price index rose by 6.5% yoy compared to 7.8% in May. Divergence in home price growth narrowed slightly among the different tiers of cities in China as all of them experienced negative mom growth. June new home price growth was 14.3%, 4.6% and 0.8% yoy, respectively for Tier-1, Tier-2 and Tier-3 cities, down from 16.6%, 6.4% and 1.9% yoy in May.
National average sale prices (ASP) of new homes was RMB6,033/sqm in June, down by 1.5% yoy compared to 1.2% decline recorded for May.
Back to Bloomberg which reports that some Chinese cities started to relax property curbs to stimulate the local market, while developers have cut prices since March to lure buyers. The central bank in May called on the nation’s biggest lenders to accelerate the granting of mortgages, and urged them to give priority to first-home buyers.
Housing Minister Chen Zhenggao urged cities with high housing inventories to reduce them “with all means,” 21st Century Business Herald reported today, citing an unidentified local housing official who participated in a meeting that Chen held. Local authorities could set policies to stabilize their property markets based on local conditions, according to the paper.
“The current biggest problem of China’s property industry is that the housing inventories are too high,” said Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong in a phone interview today. “But the declines are still not very big. With more cities relaxing curbs and the economy stabilizing, the property market will gradually stabilize.”
Lowering prices to clear out excess inventory? What a novel concept. Too bad it will never be tried in the US. Or China for that matter, because should the ongoing home price collapse continue, the impacts on the bad loans held by China's semi-nationalized financial system will be dire. Which is why we expect that the recent surge in credit injection, which in Q1 was the highest on record as tracked by financial assets in the local banking system, will accelerate and blow out all previous records. In doing so, and especially if China indeed blocks all liquidity conduits to divert local cash offshore, expect Chinese inflation to finally pick up once again as it did in 2011, when it sent the price of gold to an all time high in the process.
As for China's "deleveraging", may it rest in piece.