Forex Marketz Daily Forex News – Fully Markets Update
New home prices in China continue to fall. For the sixth month in a row China showed an annual decline in prices for the month of February. There is a tepid demand and sentiment is poor in spite of the government’s recent easing.
In February the price of new homes fell 5.7 percent. The number was below the January reading of 5.1 percent and the largest drop since 2011. Also, Beijing and Shanghai showed price declines in homes. These numbers came in at -3.6 and -4.7 percent respectively. Shanghai saw a 4.2 percent drop in January.
China’s Statistics Bureau is Expecting a Strong Recovery in March
The news is not good. There is a real credit crunch in China and prices must adjust after time. Beijing is trying to stabilize things. They have initiated policy changes and the People’s Bank of China (PBOC) has reduced policy rates. These measures will help but it takes time.
The PBOC has reduced the reserve requirements (RRR) for commercial banks. This is the minimum amount of cash they need to hold in reserves and cannot lend. They also cut main interest rates back in November of 2014.
China’s property market has shot higher over the recent years but has now been cooling off. There is a supply glut and economic growth has moderated. The housing sector is 15 percent of China’s GDP. Their economy slowed to 7.4 percent in 2014. This is the slowest growth rate in 24 years.
Their property market has to turn around and stop being a drag on growth or China will miss its GDP growth target and might miss 7 percent growth this year. There is the expectation that China will do more to spur growth. Expect more monetary easing and the PBOC is likely to cut rates by 25 basis points during the last quarter of 2015. This should help the tier 1 cities, above, show some growth. For now new home prices are showing now growth, they are decreasing in value. If they can turn this around, it will also encourage more inflows of capital into China’s financial markets.
