Activity in smaller cities propped up home-price growth in China in August, but deceleration in coming months would signal a move into a downturn, some economists say.
The average price of new homes in 70 cities rose 0.2% in August from July, excluding government-subsidized housing, according to calculations from The Wall Street Journal based on data released Monday by the National Bureau of Statistics. That compares with a 0.5% on-month gain in July.
Compared with the same period a year earlier, average new home prices rose 8.2% in August after a 9.3% increase in July.
Smaller inland cities continued to lead month-to-month growth in August. Home prices in Guilin, known for its scenic hills, and Hohhot, a city in Inner Mongolia, were each up 1%. Prices also rose 0.9% in Mudanjiang, a city near the border with Russia.
Acceleration popped up in various smaller cities over the summer but lost momentum in previously hot areas. Home prices in Bengbu, a city in central Anhui province, had some of the fastest on-month gains in May and June, but contracted 0.5% in August.
When growth gets extinguished in those smaller cities, China’s “property market will be in a down cycle, and that will be the biggest drag for the economy,” says Larry Hu, a China economist at Macquarie Group.
Though inventories fell in smaller cities, their populations didn’t grow much, which means a slump in demand for new homes that will hit sales, Mr. Hu says. A possible property market downturn next year would also be marked by families carrying an unprecedented high level of debt, mostly mortgages.
Among China’s biggest cities, prices were flat in Beijing and Shanghai in August when compared with July. They fell 0.4% in Shenzhen and 0.7% in Guangzhou for the same period.
New home prices rose in 46 of 70 cities in August from a month earlier, compared with 56 cities in July. Prices of new homes increased in 68 of 70 cities in August from a year earlier, compared with 70 in July.
Source: Dow Jones