China’s sluggish May economic data to increase calls for rate cuts

China’s 70-city housing prices continued to decline in May, with new home and used home prices down -0.7% month-on-month and -1.0% MoM respectively, both seeing the steepest monthly sequential declines of the current cycle. From the peak, new home prices have declined -6.4% and the secondary market has declined -12.3%. 

Of the 70 city sample, only two cities (Shanghai and Taiyuan) saw an increase in prices in May for new homes, while none saw an increase in the secondary market. This was notably worse off compared to April, when six cities saw increases in new home prices and one city saw an increase in secondary market prices. Year to date, two cities saw new home prices increase, and none saw secondary market prices increases. 16 and 48 cities within the sample have seen declines of over 3% in primary and secondary markets respectively. New home sales remained well in contraction at -27.9% year-on-year YTD. 

Real estate investment fell to -10.1% YoY YTD in the first five months of the year, down from -9.8% YoY YTD in the first four months of the year. Once again, this came in weaker than market consensus expectations, even after economists have turned more pessimistic on this indicator. New home starts fell -24.2% YoY YTD, which was a slightly smaller decline than previously. 

This data was certainly on the disappointing side and may ring some alarm bells, as May’s policy support package has not yet translated to a slower decline of housing prices, let alone a stabilisation. This data further indicates that the property sector will remain a headwind on growth this year. With that said, we caution against overreaction, and it is still worth waiting for a few months of data as some lag could be expected.