VIEW: Goldman Weigh In On Weekend Mortgage Market Announcement

After the PBoC cut the floor of mortgage rates for first-home buyers, Goldman Sachs note that “this policy announcement came after further deterioration in property related indicators and renewed activity growth slowdown from anti-pandemic measures. Outstanding mortgages contracted in April, and lending to property developers also decelerated as of Q122 according to the PBOC. Our latest high-frequency tracker suggests property transactions in top-tier cities still showed more than 50% year-over-year decline, despite recent property policy easing. This announcement looks to be a step in the right direction, and more important than the previous local easing given that this is a national-level policy, but we think still more support is needed to stabilize the market.”

• “While this announcement could help improve expectations and sentiment in the property sector, how much this cut could add to property demand remains to be seen. This cut would affect new mortgages immediately, while existing mortgages are usually re-priced annually and therefore might not benefit until at least next year, and the effective mortgage rates by then would also depend on the premium banks decide to charge. This cut also opens the door for further property policy easing on a nationwide basis if the property downside remains, such as cuts to downpayment ratios. At the local level we might also see an acceleration of property policy easing including relaxing home purchase restrictions and sales tax cuts.”
• “We continue to expect more policy easing to be announced, as the local Covid situation appears only to be improving on the margin with almost half of 2022 behind us. Activity growth has been quite weak due to Covid resurgence and property indicators have continued to weaken despite the recent policy easing.”