China’s long housing boom—the main support for growth over the past two years—is starting to show its age. That could mean trouble in the near term for bubbly copper prices, up around 10% this year, and lead to easier monetary policy later in 2019.
Property data released tomorrow will likely show house prices still rising, but the outlook is darkening, with land prices already showing pronounced weakness. Nearly every piece of housing-related data for January and February signaled trouble, the major exception being nominal property investment growth, which accelerated. Output growth weakened sharply for glass, power, nonferrous metals and cement. Housing and land space sold was down from a year earlier, the latter by 34%.
Most important, official data showed vacant, unsold residential floor space rising for the first time in two years—a sign the fall in inventories that has served as a key support for new construction since 2016 is probably at an end. The gap between investment growth and sales growth—11.6% and negative 3.2%, respectively—was wider than in all but one month since early 2015. The combination of strong investment and weak sales suggests restocking, and is unlikely to be sustainable.
Inventories remain low compared with the enormous glut of 2014, which presaged the next year’s housing slump. That suggests the looming downturn will be shallower too, as long as policy makers don’t try to delay the pain by opening the stimulus floodgates for another building spree.
Policy makers are in fact signaling an easier stance on the margins, though there is little sign yet of “irrigation-style” stimulus—the type forsworn by senior officials, including Premier Li Keqiang. China’s housing minister Tuesday said the housing market had recently become more “rational”—before reasserting Beijing’s firm line against speculation. Local governments in Zhejiang, Guangdong and Shandong have eased some housing restrictions in recent months.
None of that amounts to a big housing stimulus, but the market is coming off the boil—giving China’s central bank more room to ease, should it see the need. If exports don’t recover in the second half and overall investment remains weak, the People’s Bank of China could yet decide to make it rain.
Source: The Wall Street Journal