China’s housing market will continue to weaken as the government’s series of stimulus and support measures are “insufficient” to support the housing sector, according to economists at JP Morgan.
“The housing market crash is not over yet,” Haibin Zhu, JPMorgan’s chief China economist, said on CNBC’s “Squawk Box Asia” on Monday, adding that home prices won’t stabilize until 2025 at the earliest.
The average sales price of new homes in 100 Chinese cities rose slightly 0.11 percent from July, slowing from a 0.13 percent increase in June, data from the China Index Research Institute released on Saturday. Second-hand home prices fell 0.71 percent from the previous month, the report said.
The average prices of new and second-hand homes fell 1.76% and 6.89%, respectively, year-on-year as the country’s housing market remains in a deep crisis.
Bloomberg reported Saturday that China is considering a plan to lower borrowing costs for homeowners by allowing them to refinance up to $5.4 trillion in mortgages.
However, analysts are skeptical whether the proposed measures will be effective in stimulating homebuyer sentiment and overall consumption.
“Some people think consumption will pick up, but that’s only one side of the story,” said Winnie Wu, chief China equity strategist at Bank of America Securities. Lower mortgage rates will likely lead banks to cut deposit rates to protect margins and ensure the stability of the financial system, she said, noting that lower deposit rates ultimately reduce interest income on household savings.
JPMorgan’s Chu said the mortgage refinancing measures also have little effect on boosting demand for new homes.
“Even if a mortgage refinancing policy is implemented, it will not be a policy that will stimulate the housing market,” he said, adding that “the policy has nothing to do with new housing demand and will primarily benefit existing homeowners.”
“Cutting interest rates is not the best policy. Squeezing banks’ margins won’t do much,” said Wu of Bank of America Securities, adding that the government needs to “create a positive feedback loop rather than this downward spiral.”
