Rising Hong Kong home prices to likely encourage 'momentum buyers' back into market

A bull rally into a bear market.

A small, growing number of Hong Kong households expects home prices to rise, and these optimistic households are seen as the ones behind the recent house price recovery, observes an analysis.

According to a research report on Hong Kong property by CIMB, though, this may continue in the short-term, but it is ultimately a bull rally into a bear market.

The report noted that rising prices will likely encourage more ‘momentum buyers’ back into the market and there will likely be an on-going small pick-up in sales and an increasing weighting in agents’ surveys of those who expect prices to rise, but in the end, the majority of household expectations show the psychology of what the situation really is.

Here's more from CIMB:

This, in our view, represents the immutable nature of human psychology: homeowners take time to shift their beliefs, leading to price anchoring and a slow adjustment in their faith in ever-rising prices built up over the bull market.

As the US experience shows, when the psychology of the bull market finally breaks, the end of the illusion of ever-rising prices will be painful. Yet this is a necessary step on the road to revulsion.

This also explains why property stocks no longer follow property prices; in a distorted market, price changes and volumes no longer provide any reliable signalling for investors.

Instead, stock prices are driven by changes in new home supply and expectations for US monetary policy, reflecting the bubble’s foundation in easily-available cheap credit. We remain Underweight on the sector.