Less than three weeks ago, when the PBOC proceeded with its latest "surprise" rate cut, we showed a chart that should scare everyone who is hoping that China will avoid a hard-landing would prefer would never have been revealed: the annual collapse in Chinese home prices is now so sharp and so widespread, that it has surpassed the housing collapse in the aftermath of the Lehman collapse."
Overnight things went from bad to worse, when China's National Bureau of Statistics reported that contrary to hopes for a modest rebound, China's average new home prices fell at the fastest pace on record in February from a year earlier.
As Reuters reported earlier, average new home prices in China's 70 major cities dropped 5.7 percent last month from a year ago, the sixth consecutive fall, following January's 5.1 percent decline. It was the biggest annual decline in the nationwide survey since it began in 2011.
The monthly fall in February from January was 0.4 percent, the same as in the previous month, and pointing to sustained risks to the government's new 7 percent economic growth target for the year. The property sector accounts for some 15 percent of China's gross domestic product (GDP).
The economic slump continues to impact China's corporations, and the record fall coincided with news that Chinese banks have extended Evergrande Real Estate Group 100 billion yuan ($16 billion) in credit, as the real estate slump extends to one of the country's biggest and most indebted property developers. This leave many wondering how much more pain can China's housing industry take before a wholesale government bailout is inevitable.
Putting things in perspective, on Monday we showed just how massive the impact of China's housing bubble burst is on the economy, when we reported that government revenue from land sales dropped 36.2% to 455.3 billion yuan - far, far worse than the worst expectation.
Some more color from Goldman on the housing collapse in China:
On a sequential basis, housing prices in the primary market fell 0.4% mom (weighted by population, seasonally adjusted) in February, similar to the magnitude of decline in January. 67 out of 70 cities monitored by China’s National Bureau of Statistics (NBS) saw housing prices fall from the previous month (vs. 65 out of 70 cities in January). The largest month-over-month price fall came from Dandong (based on sequential price changes after adjusting for seasonality and the Chinese New Year holiday), a lower tier city in Liaoning Province.
On a year-over-year, population-weighted basis, housing prices were down -5.6% (vs. -5.0% yoy in January). Hangzhou continued to be the city with the largest price correction, with the yoy housing price down 10.4%, vs. 10.1% in January.
There is reality... and then there is hope:
Liu Jianwei, a senior statistician at the NBS, said in a statement on Wednesday that sales in March will show a significant seasonal rebound from February's Lunar New Year pause. "Although the overall market eased in the beginning of the year, as policies loosen further and new launches pick up in March, the property market is expected to see a recovery," said consultancy China Real Estate Index System (CREIS).
As for the market, stocks couldn't be happier by the devastating news. The reason - more PBOC intervention is assured (and, as we predicted, ultimately QE by the PBOC):
Chinese real estate stocks .CSI300REI jumped in response to the price news, with the Bank of Communications expecting the government will announce more measures to bolster the market, including lowering taxes and loosening requirements for mortgage lending.
"Over the weekend, Premier Li Keqiang vowed to support the economy if it continues to slide, so the worse the economic data, the sooner stimulus policies will be rolled out," said Luo Wenbo, analyst at Qilu Securities.
"Investors wouldn't have been so bold if the premier hadn't made that promise.
What investors? Just call them BTFD automatons for whom every incremental piece of horrible economic news is just what the central planner ordered. End result: the Shanghai Composite closed up 2.1% to the highest since 2008.
In other words, if and when China finally reveals that it is currently not in hard, but crash landing mode, with GDP as Cornerstone estimated at under 3%, the SHCOMP will simply find itself offerless and stop for trading as everyone puts all their remaining cash in the Chinese stock market, that one final bubble now that the housing bubble is a distant memory.