The outside world is paying great attention to whether the central bank will raise interest rates or relax controls at this meeting of the Board of Supervisors. (Taken from the central bank website)
The central bank's Board of Supervisors will appear on September 17, and market discussions on raising interest rates have once again increased. Experts said that the background of this wave of pressure to raise interest rates is different from the past. It is not just a single factor of inflation, but comes from the overlapping of three forces: "strong economic growth, still loose funding, and stubborn inflation." This puts the central bank under greater policy pressure in stabilizing prices and maintaining financial order.
Li Tongrong, a real estate market trend expert, believes that if the central bank resumes raising interest rates, the impact on the real estate market, which has entered a correction cycle, may be greater than the superficial "half-digit". The key is not how much the interest rate rises, but the position in the housing market cycle where the interest rate rise occurs. Bulls in the housing market are not afraid of the first shot, but bears are most afraid of another shot. Raising interest rates will cause a "double blow" and "three major negative effects" to the housing market.
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Li Tongrong pointed out that raising interest rates usually has a delayed response to the bullish housing market, but may put immediate pressure on the housing market that is undergoing downward revisions. Raising interest rates does not necessarily cause an immediate drop in housing prices. If the housing market is in an upward cycle, with strong economic growth, increasing income, and sufficient buying momentum, the market will often still be able to absorb even if the central bank raises interest rates slightly in the early stages. Therefore, when the rising real estate market faces an interest rate increase, it usually has a limited initial impact on the real estate market; in the mid-term, interest rate increases will first suppress investment and consumption; in the long term, the economic cooling will only be gradually reflected in the real estate market.
But if the housing market itself has entered a downward revision cycle, the situation is completely different. The current housing market has entered a correction since the fourth quarter of 2024. Under this situation, raising interest rates again will not be a general policy adjustment, but will add another layer of pressure to the weak housing market. In other words, if the housing market, which is already on a downward slope, encounters another increase in interest rates, it will easily lead to the effect of "adding insult to injury".
Li Tongrong said that the current real estate market is most afraid of a "double blow." The first blow is credit controls locking up funds. The second blow is that rising interest rates have increased mortgage and ownership costs. This is far more lethal to the shrinking market than it was during the bullish phase of the housing market.
Currently, the real estate market is already under the first layer of pressure, which is credit control. Credit control restricts "access to funds," including loan ratios, credit conditions, and bank risk control. Tightening has reduced market liquidity. If the central bank raises interest rates again, it will create a second layer of pressure, which is "increased capital costs."
The difference between the two is that credit control addresses "how much you can get for a loan"; interest rate increases affect "how much you have to pay for a loan." When the amount of funds is restricted and the price of funds increases at the same time, it is a typical double blow to the housing market.
Li Tongrong believes that if the central bank raises interest rates, it will bring "three major negatives" to the housing market, including an increase in mortgage burden, a delay in the immediate demand for owner-occupancy, and a cooling of transaction volume again.
Li Tongrong said that there will be a special phenomenon in the housing market in the future. On the one hand, rising inflation, wages, and construction costs will give sellers and builders some support for prices, making it difficult to quickly reduce prices. On the other hand, rising interest rates will increase the cost of buying and holding a home, making buyers even less willing to chase prices.
As a result, the market is prone to the formation of sellers who are reluctant to reduce costs and buyers who are under pressure and unwilling to pursue. This deadlock is usually not first reflected in the price, but first reflected in the trading volume. Therefore, what should be observed in the future is not whether housing prices will plummet immediately, but "how long the volume will be reduced and how much the price will be reduced."
Li Tongrong said that the market does not have to focus only on whether the central bank raises half a cent or one cent. What really matters is where in the housing market cycle the interest rate hike occurs. If the central bank restarts raising interest rates at this time, the current housing market will face the double blow of "credit control + interest rate hike"; "increased mortgage burden + postponement of owner-occupied demand + further cooling of transaction volume".
At present, the real estate market is most afraid of another shot at raising interest rates. If the central bank raises interest rates, it should relax credit controls. This is what the real estate market should really focus on after this central bank board of supervisors meeting.
