China's Housing Market Slump Deepens as July Prices Fall, Sales Weaken

China’s property market showed further signs of weakening in July, as secondary home prices fell for a second consecutive month and sales volume growth slowed significantly. An analysis by Morgan Stanley tracking 85 sample cities found that listing prices declined by 0.5% month-over-month, mirroring the drop seen in June.

Widespread Price Declines

The latest data underscores the persistent and broad-based nature of the downturn in China's residential real estate sector. According to the Morgan Stanley note, the July figures bring the year-over-year price decline to 9.6%.

Key takeaways from the report include:

• Cumulatively, secondary housing prices have fallen 38% since their peak in June 2021.
• Price weakness was widespread, with approximately 95% of the cities sampled posting month-over-month declines.
• All Tier 1 cities saw an accelerated monthly price drop, averaging 0.4% in July compared to 0.1% in June, which analysts attributed to a catch-up effect after a period of relative outperformance.

Weakening Sales and Swelling Inventory

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The slowdown is also evident in transaction volumes. Year-over-year growth in secondary home sales across 25 major cities softened to approximately 9% in July. This marks a sharp deceleration from the 30% growth seen in April and 10% in June, a trend the bank's analysts link to fragile resident sentiment and a growing supply of available properties.

Total property listings across 50 sample cities increased by 0.5% month-over-month, with 35% of those cities reaching record-high inventory levels. Meanwhile, visits to real estate agent offices fell by 6% from the previous month, which analysts noted could be partly due to seasonal effects.

Broader Economic Impact

The sustained slump in housing is creating a significant negative wealth effect that equity market gains have failed to offset. Morgan Stanley estimated the value destruction in the housing market since December 2024 at approximately 41 trillion yuan. Over the same period, the rise in Chinese A-share markets amounted to only 24 trillion yuan.

This gap is critical, as over 70% of Chinese household wealth is held in real estate. The sector's health also has global implications, given that the Chinese market represents more than 30% of total spending in the European luxury goods sector.