Monitor | Forecast of 30 per cent slump in home prices is about right
Barclays may have jumped the gun earlier, but its researchers point to burden of mortgage servicing when rates rise amid abundant supply
Two years ago, at the beginning of November 2011, Barclays Bank published a research report forecasting that Hong Kong home prices would fall 30 per cent over the following two years.
Two years on, and local housing prices have actually climbed 24 per cent.
Barclays is undismayed. Yesterday, the bank published a new report predicting that by the end of 2015, in two years' time, Hong Kong home prices will have fallen by … 30 per cent (see the first chart).
Once prices weaken, owners of investment properties will rush to take profits
To be fair, yesterday's report was written by a new team of analysts, not the same pair who wrote the 2011 paper.
And while Monitor was sceptical about the earlier forecast, writing in November 2011 that "supply is short and mortgage rates are low by historical standards - both of which should help support prices", this time Barclays makes an arresting case.
Although the US Federal Reserve is now unlikely to begin raising interest rates until 2015, most analysts accept that when it does, and Hong Kong mortgage rates increase in parallel, local home prices will weaken.
But Paul Louie and Zita Qin at Barclays believe that consensus expectations for a correction of about 15 per cent understate the magnitude of the likely fall.
They argue the 15 per cent figure is based on projections of how rate increases will affect the cost of servicing a mortgage.