As we look towards the year 2025, the question of how the housing market will evolve amidst unprecedented environmental changes looms largeWill there be a price bottoming-out? Can we anticipate an upward swing in property values once again?

An examination of the trends in housing prices across 70 major urban centers in China provides a fascinating lens through which to analyze the trajectory of real estateThis dataset spans a decade and includes statistics from first-tier cities like Beijing, Shanghai, Guangzhou, Shenzhen, as well as emerging second-tier cities such as Hangzhou, Xi’an, and NanjingFurthermore, it enlists third and fourth-tier cities like Wuxi and Pingdingshan, rendering it a well-rounded view of the present housing market in the country.

Reflecting back on the period from 2011 to 2015 reveals a stark truth – the national real estate prices remained largely stagnant during these years

What stands out in this five-year stretch is the experience of two small cycles characterized by initial price increases followed by subsequent decreases, maintaining an overall horizontal trend in real estate values.

Even in trendsetting cities such as Beijing and Shanghai, where aspirations for wealth are more fervent, there was an absence of notable upward price movementsThis might prompt one to recall how discussions about rising property prices were far less prominent during this timeframeCan you think of anyone who frequently brought up the topic of real estate escalating during this period?

However, everything changed in 2015, a pivotal year that ushered in significant events impacting housing pricesOne of the most critical factors was the foreign exchange crisis that exploded like a bombshell upon the financial markets.

In this climate, the Shanghai Composite Index was devastated, plummeting from 5178 to a mere 2850 points, effectively halving its value

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Simultaneously, the devaluation of the Renminbi, triggered by a currency reform initiative, compounded woes as the nation's foreign exchange reserves shrank by an unprecedented $512.7 billion—a first in 23 years—setting off fears of capital outflows and a fundamental lack of market confidence.

This raised the question: how do we attract capital that is now in a frantic search for safety? The answer was straightforward: real estate.

If the widespread consensus is that properties appreciate more quickly than other investments, the slippery footing of capital can be managed, stabilizing the currency's value.

The momentum for these price hikes relied on another landmark event in housing policies: the monetary compensation reform for demolished homesIn June 2015, the government pivoted from physical resettlement for relocation to giving cash compensation, which meant that people affected by demolitions were now in possession of substantial sums that could be directly funneled into the real estate market.

This policy quickly transformed a swathe of displaced individuals into buyers with cash on hand, thereby reversing demand and supply dynamics in a previously calm market

It wasn’t long before what started as modest increases in property values evolved into a wild ride into soaring prices.

From 2016 onward, the real estate sector ignited, with cities witnessing skyrocketing values across the boardEven properties that once took months to sell were seeing significant hikes in their asking prices overnightInstances arose where sellers, having accepted deposits, backed out of sales agreements, deeming the losses worth incurring, since the rapid appreciation in market prices would more than offset any penalties.

Coupled with social narratives that perpetuated the optimistic notion that prices would continually rise, the era of 2011 to 2015 soon faded from memory.

However, that bullish trend began to wane by the latter part of 2019. By then, the national average increase in housing prices had begun to stabilize towards zero, with the COVID-19 pandemic in 2020 plunging society into a new phase of uncertainty.

To combat economic downturns, central banks globally, especially in the United States, embarked on unprecedented rounds of monetary easing, injecting nearly $5 trillion into their economies, which effectively ignited inflation on a massive scale.

In line with this global trend, China was not insulated either

The monetary supply growth in 2019 had already slowed to 8%, but by 2020, it surged back into double digitsAn influx of liquidity flooded the market, compelling a revival in real estate prices, fueling a narrative of wealth among individuals.

With phrases like "lying flat" and "involution" entering the daily lexicon, a wave of doubt began to permeate society as individuals grappled with the drastically inflated costs of living.

The fundamental principle of rise and fall echoed through this prosperity, as the unfounded escalation in housing prices failed to yield tangible benefits for the average citizenInstead, it burdened new home buyers with excessive mortgages and unexpected financial strains

Fast forward to 2022, and the real estate market found itself at a crucial turning point where prices ceased their upward arc and entered a phase of correction—a trend that shows no signs of abating.

Looking ahead, key indicators suggest ripples of transformation forming that could indicate an inflection point for housing prices between 2025 and 2026. This bears resemblance to how 2015's issues laid the groundwork for rising prices through pivotal calendar markers.

The first variable driving these changes is the economic cycle.

One of the most notable themes is the slightly liberal monetary policy leading to hot money’s migration from banks into real estate investments and stock markets

After grappling with rampant inflation and aggressive hikes in interest rates, the Federal Reserve is now adopting a series of rate reductions.

From various announcements around stabilizing the real estate market to eliminating shared property costs, it’s clear that several factors are changing the game—an in-depth examination of which has been discussed previously and need not be reiterated here.

That said, the market is notoriously unpredictable, and policies are anything but constant, raising questions about the extent of monetary easing or the unconventional regulatory measures that may arise.

Years of real estate development have bolstered various sectors of the economy but concurrently siphoned massive wealth, leading many citizens to overextend their purchasing power for decades.

The ensuing consumer downturn and lackluster domestic demand echo back to a populace that finds itself cash-strapped

Next year's liquidity injections will hinge significantly on how well ordinary citizens can benefit from this flowing capital.

In contrast to the somewhat uncertain implications of economic cycles, the second crucial pivot point stands staunchly unyielding: the demographic shift.

The prior surges in real estate prices can largely be attributed to population dividends.

Over the last two decades, China welcomed tens of millions of young individuals into the workforce annuallyMany parents pooled their resources—sometimes emptying their daily financial coffers—to fund these property purchases.

The sobering reality now shows a steady decline in birth rates, which has yet to hit bottom, compounded by diminishing enthusiasm for home buying

Delving deeper reveals two critical demographics that summarize this inflection—the age gap of primary home buyers and the dearth of school-age children.

Dominantly, current home buyers are typically in the 30 to 35-year age bracket, which comprises individuals born around 1990, a population that is shrinking yearly.

The total number of births plummeted after 1990 with a staggering impact observed post-2016 when annual figures dropped drastically.

The implications do not end there

Take for instance the once-valuable asset of school district homesThe current climate of anxiety has turned education into a fiercely competitive battleground for many parents, resulting in heightened spending in school districts—homes that were previously worth their weight in gold.

Yet, these sought-after educational properties remain reliant on an abundant school-age population to sustain their values.

There are even reports from educators noting a stark decline in enrolment in preschools, with numbers plummeting year after year—from hundreds of applicants to merely dozens

If population trends continue on this path, the demand for housing will concurrently diminish, leading to higher inventory levels without eager buyers to step inIn essence, the scenario raises an unsettling question: who will occupy these homes?

Therefore, comparing 2025 to 2024 involves acknowledging that despite potential cash inflows due to monetary easing and shifts in Federal Reserve policies, population-related challenges will impact the housing market wherein new generational buyers and school enrollments gradually taper off, applying pressure particularly on previously lucrative school district properties.

There are reports of emerging surges in certain popular city housing markets where transactions and prices seem to be awakening from their slumber

However, for prices to gain traction, the crux lies in the influx of new capital to absorb existing properties.

Unquestionably, many urban centers are inundated with overwhelming excess inventory on the secondary housing market, revealing a fragmented demand landscapeWhile some desirable properties remain in contention, others grapple with ballooning inventories.

Typically, when the absorption period extends beyond two years, it signifies an oversupply scenario in the market

Barring substantial income growth among residents, it would be excessively challenging to replicate the price surge that emptied inventories back in 2015.

Should liquidity from monetary easing stimulate demand for new loans while simultaneously maintaining an acceptable level of secondary inventory, there could be a chance for slight price elevations; otherwise, radically reversing market perceptions in the short term stands as a formidable task.

Moreover, while the overarching trend in the housing market remains downward, a divergence is anticipated ahead