<h2>The Current Situation of Real Estate Prices</h2>
Divergent rather than synchronized decline
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<h2>The Overall Demand for Real Estate Has Stabilized</h2>
The total transaction volume of new and second-hand houses nationwide has declined by about 30% from 2021 to early 2023, and has since stabilized.
From the beginning of 2023 to now, the total transaction volume of new and second-hand houses has basically stabilized, with some structural changes. The supply of new houses has decreased, and the transaction share has dropped from 80% to 50%. The supply and transaction of second-hand houses have increased, with the share rising from 20% to 50%. However, combined, the overall demand has not continued to decline but has remained stable.
This has been achieved under the premise of falling house prices and suppressed demand. The real demand is likely higher than the current actual transaction level.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/553c0963-4ceb-4b88-a29d-9679145b1c55.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/553c0963-4ceb-4b88-a29d-9679145b1c55.png"/>
<h2>Significant Decrease in New Housing Supply</h2>
The significant decrease in new housing supply is an important reason for the stability of new housing prices and also a reason for the reduced transactions of new houses.
The area of newly started residential construction has decreased by nearly 80% compared to the peak in 2021.
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The inventory of new houses has significantly declined compared to the peak.
Whether it is the unsold inventory of newly started projects nationwide
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/787f348f-a1ad-42b1-8a79-049e2e874701.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/787f348f-a1ad-42b1-8a79-049e2e874701.png"/>
or the inventory at the level of real estate companies, there has been a significant decline from the peak.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/cf1b8690-7c3f-4966-a80b-84d2d514ee6b.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/cf1b8690-7c3f-4966-a80b-84d2d514ee6b.png"/>
A more direct indicator is that the launch volume in the top 30 cities has decreased by 70-80%.
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The supply of new houses is indeed relatively low, with structural changes.
In the supply structure: the proportion of high-tier cities is increasing, while the proportion of low-tier cities is decreasing. The proportion of good houses is increasing, while the proportion of ordinary demand and improvement is decreasing.
Low supply, combined with structural improvements, has driven the average sales price in the new housing market to rise over the past few years.
<h2>The Demand for Second-Hand Houses Continues to Rise</h2>
Due to insufficient supply of new houses, demand has shifted to the second-hand housing market.
The transaction volume of second-hand houses has reached new highs every year for the past three years. In the past two weeks, the transaction volume of second-hand houses has been more than 40% higher than the same period last year, reaching the highest level in history. <img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/688b92ca-beef-4010-97c4-7c7d2a3baf22.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/688b92ca-beef-4010-97c4-7c7d2a3baf22.png"/>
Since demand continues to hit new highs, why are second-hand house prices continuously declining?
What is the core driver of the decline in second-hand house prices?
It is supply, specifically the listing volume of second-hand houses, which continues to rise to new highs.
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<h2>Supply of Second-Hand Houses Begins to Decline</h2>
However, a very profound change has occurred from about two months ago to now. The listing volume in 25 cities has begun to decline continuously, and recently it has accelerated.
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I believe this trend is sustainable, as the advantage of rental returns relative to corresponding interest rates is becoming apparent.
Since 2021, house prices have dropped significantly, while the decline in rents has not been as large. The average rent-to-sale ratio in 25 cities has risen from 2.0% to nearly 2.4%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fdf60f06-9144-4896-afcb-a52047b7c96b.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fdf60f06-9144-4896-afcb-a52047b7c96b.png"/>
During this period, interest rates across various segments have significantly decreased.
The mortgage loan interest rate may have dropped from over 5% at its peak to around 3%. The interest rate for business loans is only 2.2%.
Why do I mention business loans? Because in the current personal medium- to long-term loans, mortgage loans have not seen any growth in the past two years and are declining. Business loans represent the largest increment. Therefore, the marginal financing cost for buying a house has now become the business loan. The interest rate for business loans is just 2.2%. The interest rates for bank wealth management and deposits have dropped from 3% to 4% in previous years to only over 1% now.
In such an environment, when considering two types of people, the value of houses is beginning to stand out.
For a tenant.
If you buy a house with a business loan, the cost of funds is 2.2%, while the rental return on the house may be 2.4%. In some second-tier cities or older houses in first-tier cities, it may be higher, possibly exceeding 3%. A tenant can now buy a house where the monthly payment is less than the rent. This situation will stimulate some pent-up demand. The transaction volume of second-hand houses in the past two weeks has exceeded 30% compared to the same period last year, which is proof of this
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For a landlord.
You will find that a few years ago, saving in the bank and buying wealth management products yielded significantly higher returns than rental income, by 1% to 2%. But now it has reversed; if I keep the house for rent, I still have an average rental return of 2.4%. However, if you save in the bank or buy wealth management products, it might just be over 1%. The rental return from the house is now higher than that from wealth management or savings. In the current context of asset scarcity, if he doesn't have particularly good options, doesn't have a high risk appetite, and doesn't necessarily want to enter the stock market, then keeping the house for rent, rather than selling it, might be more appropriate.
In the past few months, the second-hand housing market has experienced a concentrated rise in listings and a price crash. I believe that was the last wave of price drops, stemming from the liquidation of leveraged positions. When the price drop of second-hand houses approached 40%, a batch of speculative demand from leveraged house flipping faced liquidation. If we look at the differences between cities, we can see that the only major city where listings are still rising is Shenzhen, which happens to be the epicenter of the last round of house speculation. This is also a confirmation.
After this round of so-called leveraged liquidation and forced sales, the remaining homeowners generally have lighter leverage and are relatively financially stable. They will find that the value of the house has dropped compared to wealth management and savings, so there is no need to list the house for sale anymore.
At this moment, we see:
Firstly, the transaction volume of second-hand houses is accelerating upward, and secondly, the number of listings for second-hand houses is continuously decreasing. Behind this is the solid support of the difference between rental returns and interest rates. A decrease in supply and an increase in demand is a clear signal of a turning point. This is our analysis from a quantitative perspective.
<h2>Narrowing Decline in Second-Hand House Prices</h2>
Additionally, there have been clear signals regarding prices recently.
In November last year, the speed of house price declines was the fastest. At that time, the week-on-week decline was about 0.3-0.4%, with a monthly drop of around 1.5%. In the latest weeks, the decline has been continuously narrowing. Last week, the national index's week-on-week decline was 0.17%, and the latest week’s decline is only 0.11%.
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This is still the national index; if we look at cities, last week, Hangzhou and Shanghai both achieved positive week-on-week changes, indicating that the second-hand house prices in Shanghai and Hangzhou have bottomed out.
Market reversals always start in advantageous areas and then transmit from local to overall. At this moment, I feel very confident that although the national index has not yet turned positive, the turning point is basically confirmed. It is very likely that we will see the national index stabilize within two quarters
This article is sourced from: Banxia Investment
Risk Warning and Disclaimer
The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk.

Li Bei pointed out that the Chinese real estate market is undergoing an important turning point. Although the transaction volume of new homes has decreased, the transaction volume of second-hand homes has continued to rise due to insufficient supply of new homes, reaching a historical high. The significant decrease in new home supply is the reason for the firm prices, while the increase in the listing volume of second-hand homes has led to price declines. Recently, the listing volume of second-hand homes in 25 cities has begun to decline, indicating structural changes in the market and the advantages of rental returns

Li Bei: Confirmation of the Turning Point in China's Real Estate