Last year, we published Forecasting Hong Kong house prices papers assessing how Hong Kong housing prices changed according to various factors. Our analysis concludes that the Hang Seng index (HIS) leads residential prices in Hong Kong by 3 to 6 months continues to hold over the long term.
Due to the COVID-19 outbreak, we have seen the unemployment figure ramp up quickly in recent months. In the first six months of 2020, there were 240,700 unemployed people, which
represents an unemployment rate of 6.2%.
What about unemployment?
We looked into the correlation between unemployment and property prices, in particular in periods in recent history in which Hong Kong saw fast growth in unemployment, including the periods after the Asian Financial Crisis (1998–1999), SARS (2003) and the Global Financial Crisis (2008–2009).
The findings show that mass residential prices were strongly negatively correlated to unemployment in all three periods. Moreover, this negative correlation remained consistent with a lag of 1 to 2 months, implying that property prices have a high chance of falling within 1 to 2 months of a rapidly rising unemployment rate. However, the correlation between unemployment and luxury residential prices was lower, with luxury residential prices remaining relatively stable in the past amid rising unemployment.
Which employment sectors actually matter?
Since the Global Financial Crisis in 2008, among all different sectors in Hong Kong, unemployment in the banking, finance and insurance, and professional and business services sectors has the highest correlation with house prices, but the current unemployment rate in these sectors remains low. On the other hand, unemployment in the retail, accommodation and food services sectors has the second-lowest correlation with house prices, but the current unemployment rate in these sectors is high.
If the employment situation in the finance and professional services sectors worsen later this year, house prices could drop. Over a longer term, however, we believe the correlation between unemployment and house prices continues to hold.
Martin Wong, Associate Director, Research & Consultancy, Greater China says the HSI leads residential prices in Hong Kong by 3 to 6 months continues to hold over the long term. In the medium term, however, the high correlation between unemployment and house prices could lead to a structural break in the correlation between the HSI and house prices, especially if there is rapid growth in unemployment, which tends to be a leading indicator of mass residential prices in Hong Kong by 1 to 2 months. Unemployment in the finance and professional services sectors tends to have the highest correlation with house prices; while unemployment in the retail, accommodation and food services sectors tend to have the lowest correlation with home prices. With unemployment rate rising, we expect mass residential price to drop by 5% in 2020.