0.45% weekly decline in residential sector works out to -21% annually

Over the period of CCL correction.

Barclays has estimated that developers’ current valuation suggests home prices will correct 23% over the next 12 months.

According to a research note from Barclays, since reaching an all-time high in mid-September, the CCL home price index has fallen in seven out of the last nine weeks.

Although the 3.94% cumulative decline over this period may appear small for now, if the current pace is maintained, this would annualise to a -21% decline, not too dissimilar to the 23% suggested by current valuations.

Here's more from Barclays:

Since setting an all-time high in mid-September, the Centa-City Leading Index of home prices has now corrected by 3.94%. Over this period, home prices have fallen in seven out of nine weeks with an average rate of decline of -0.45%/week.

Although the magnitude of a 3.94% decline may sound modest, in the context of a 0.45% average weekly decline, this would in fact annualise to a 21% decline in one year’s time.

Compared to this, we find that developers’ valuations are currently factoring in a 23% decline in their asset value, which we believe is probably fairly valuing the expectation of rapid deterioration in line with the recent trend.

However, if the average weekly decline turns out to be not more than 0.51%/week in the future, we see scope for a “less bad” relief rally for the Hong Kong developers.