China’s Housing Slump Shows Signs of Bottoming Out. We’ve Been Here Before.

China’s housing market has shown signs of stabilization in early 2024, with average prices for existing homes in Tier 1 cities—Beijing, Shanghai, Shenzhen, and Guangzhou—rising 2% from February to April, according to UBS and Centaline. This follows a 38% drop since 2021, a downturn that has reshaped consumer spending and contributed to China’s trade surpluses as exports surged due to weak domestic demand. The market remains fragile, however, with 90 million empty or unfinished apartments still weighing on prices. Analysts are divided over whether the recent uptick marks a true bottom or another temporary pause. Karl Choi of Bank of America predicts prices in major cities will stabilize in the second half of 2024, with recovery spreading to smaller cities in 2027. For many Chinese families, the housing slump has been devastating. Timothy Liu, an office worker in Henan Province, bought a small apartment in 2021 for about $76,000, only to see its value drop by nearly a third. His situation reflects broader struggles, as falling home prices have led consumers to cut back on nonessential spending, further weakening the economy. Chinese banks have avoided the worst of the crisis by requiring large down payments—typically up to 40% of income—reducing mortgage-related risks. Unlike the 2008 U.S. housing crash, where many borrowers faced foreclosure with little equity, China’s banking system remains more resilient. However, the long-term impact on middle-class savings and economic confidence remains unclear. Shanghai has introduced measures to ease borrowing through a municipal housing fund, effectively lowering mortgage costs. While landlords still struggle with rent-to-mortgage gaps, the gap has narrowed, offering some relief. The market’s future hinges on whether these trends sustain or reverse, with global implications given China’s role in trade and finance.