Chinese Home Prices Suffer Biggest Annual Drop Ever: Why This Matters

While the world’s attention is glued to events in Greece, the real action continues to evolve quietly thousands of kilometers east, in China, where the near record surge in new loans remains unable to offset the dramatic slowdown in shadow banking issuance. And while China’s bubble-chasing, animal spirits have recently reoriented themselves from real estate to the stock market, it is the real estate that holds the bulk of China’s wealth. The problem here is that as China reported overnight, new-home prices in the world’s most populous country just recorded their biggest annual decline ever!

January data shows China’s home prices continue their slide… pic.twitter.com/FvVNMFEhro

— Tom Orlik (@TomOrlik) February 17, 2015

On a sequential basis, housing prices in the primary market fell 0.4% mom in January, more than the 0.3% decline in December. 64 out of 70 cities monitored by China’s National Bureau of Statistics (NBS) saw housing prices fall from the previous month (vs. 67 out of 70 cities in December). The largest month-over-month price fall came from Quanzhou, a lower tier city in Fujian province.

Chinese Home Prices Fell in 64 of 70 Cities Surveyed in Dec MoM (Any signs of improvement have stalled) pic.twitter.com/aAYMPOPlmA

— Michael McDonough (@M_McDonough) February 17, 2015

Broken down by Goldman, on a year-over-year, population-weighted basis, housing prices were down -5.0% (vs. -4.3% yoy in December). Hangzhou continued to be the city with the largest price correction, with the yoy housing price down 10.1%, vs. 9.9% in December.

What’s worse, is that the tepid dead-cat bounce seen in the past few months has once again ended and is now headed lower yet again.

In other words, the beneficial impact of the recent surge in credit creation and excess liquidity has already faded when it comes to primary Chinese wealth assets because recall that while in the US 28% of household wealth is in real estate, with the remainder in financial assets in China it is the opposite:

… and as we noted previously, China is now rapidly becoming like the US, where any excess liquidity is flowing direct into the P/E expanding stock bubble instead, in turn leading to a collapse in the M2 which as we noted recently just tumbled to the lowest reading on record as China joins every other nation whose conventional monetary pipeline has become clogged as a result of chasing stock market bubbles.