Focus today: 5-year LPR down 15bp
The quoted market interest rate (LPR) of one-year loans of the central bank remained unchanged at 3.7%, and the quoted market interest rate (LPR) of five-year loans was reduced by 15bp to 4.45%. With regard to the current five-year LPR reduction, we believe that the long-term interest rate reduction naturally has a strong supporting effect on residents, but combined with the current real estate dilemma, the 15bp five-year LPR adjustment may not be enough.
The current dilemma of residents' house purchase: it is better to buy a house than to manage money, and it is better to rely on capital to borrow. For residents' house purchase behavior, whether it is investment demand or rigid demand, there are "timing" considerations in their house purchase behavior. This "timing" means that when the cost of buying a house is significantly higher than the income, the purchase behavior of residents may be delayed with a high probability.
The current objective situation is that as of March 2022, the current house price is 0.7% year-on-year, the mortgage interest rate is 5.49%, and the financial return rate is 2.85%. The house price is significantly lower than the mortgage interest rate and financial return rate year-on-year. And because the current mortgage interest rate is significantly higher than the rise in house prices, in fact, everyone's willingness to borrow is not strong in essence. In the past year, the proportion of new personal housing loans in commercial housing sales was 17.9%, the lowest since 2013.
Further, we combine the four factors of house price, mortgage interest rate, down payment ratio and financial return rate to obtain the additional return rate of residents' house purchase. According to the historical data, the additional return rate of residents' house purchase is basically consistent with that of real estate sales year-on-year. It is worth observing that since October 2021, the additional rate of return on Residents' house purchase has been negative for consecutive may, and the sales area of commercial housing should be at the lowest value in history outside February 2020 year-on-year.
Discussion on the future of residents' house purchase: the house price has a top year-on-year and the mortgage interest rate has a bottom year-on-year. Considering that the current mortgage interest rate is significantly higher than the house price year-on-year, we believe that residents' willingness to borrow is weak. Assuming that the current proportion of new loans in commercial housing sales remains at 20%, we give the following three scenarios of residents' additional return on house purchase:
Scenario 1: assuming that the mortgage interest rate remains unchanged, how much will it take to improve residents' expectations by fully relying on the recovery of house prices? The annual house price may return to about 3.7% ~ 4% year-on-year, and the additional rate of return on house purchase can be corrected. This corresponds to the year-on-year or at least return to the range of 8 ~ 10% of house prices in first tier cities, and the policy of housing without speculation is facing great challenges.
Scenario 2: assuming that the mortgage interest rate drops to the current lower limit (4.25%), the annual house price may need to return to a year-on-year growth rate of about 3.1%, corresponding to a year-on-year growth rate of 6% in the first and second tier cities. Although the challenge of not speculation in housing may be reduced, the core urban areas of the first tier cities may still rise relatively high.
Scenario 3: assuming that house prices strictly comply with the policy restrictions of "housing, housing and non speculation", under the influence of the ceiling of 5% year-on-year in the first and second tier cities, the national house prices may only rise to 2% year-on-year, so the mortgage interest rate may need to be reduced by 280bp to return to about 2.7%, which corresponds to that the five-year LPR still needs to be reduced by 175bp. Therefore, the corresponding monetary policy seems unrealistic at present.
To sum up, this round of real estate policy may be a difficult trade-off under various restrictions. On the one hand, it may allow the house prices of some second tier cities with population inflow to exceed 5% year-on-year, providing a certain expectation of house price stabilization. At the same time, the first tier cities will increase the supply of affordable rental housing and divert just needed funds, so as to control the first tier increase. On the other hand, it may alleviate the debt cost of commercial banks by reducing the reserve requirement, so as to further promote the decline of housing loan interest rate.
It is worth noting that the above is only a static rough calculation. In fact, the adjustment of house prices and mortgage interest rates are facing some practical constraints. Specifically:
Under the three constraints, it is difficult for house prices to rise year-on-year
For house prices, we believe that this round of house price recovery faces many challenges. The main reasons are that the house prices in the third tier cities are too low year-on-year, the low inventory may lead to excessive fluctuations in house prices, and the leading indicators have not been repaired.
First, house prices in the current third tier cities are too low year-on-year. Compared with the previous rounds of house price rise cycles, the year-on-year change range of the third tier cities has never exceeded the year-on-year change range of the first tier cities. This means that if the annual house price growth rate is to be 3% ~ 3.7%, the house prices in the first and second tier cities need to return to at least 5.7% ~ 6.4% year-on-year.
It is worth noting that even under the year-on-year prediction scenario of 3.7% of the annual extreme house prices, the house prices in the third tier cities are still difficult to exceed 1% year-on-year. There is still an objective situation that buying a house is better than buying financial management in the third tier cities.
Secondly, the current low real estate inventory has excessively pushed up house prices or ushered in a sharp rebound in house prices. In the past ten years, the average value of the decommissioning cycle is about 25 months. At present, the decommissioning cycle of commercial housing is about 22 months, which is obviously low. According to the historical data, when the real estate inventory is low, the year-on-year upward pressure on house prices is great. Therefore, once the year-on-year upward trend of house prices is determined, it may be difficult to curb the rapid rise of house prices.
Third, leading indicators indicate that house prices may fluctuate by about 0% year-on-year in the second quarter. Whether based on the regression calculation of the land premium rate of Baicheng (70% of the adjusted R side) or the regression calculation of the "expected rise proportion of house prices" published by the central bank (47% of the adjusted R side), it indicates that the house prices in the second quarter will remain at about 0% year-on-year or continuously.
Three restrictions, the mortgage interest rate is difficult to act
As for the mortgage interest rate, we believe that the current round of mortgage interest rate reduction may be limited by many practical factors. Specifically:
First, the current mortgage interest rate may be 140bp higher than the previous easing cycle Before 2018, China's housing loan interest rate was about 50bp lower than the loan weighted interest rate. Since 2018, the mortgage interest rate has been higher than the loan weighted interest rate. As of March 2022, the mortgage interest rate is still 84bp higher than the loan weighted interest rate From this perspective, compared with other interest rates, the current residential mortgage interest rate is obviously relatively high. It is worth noting that even if the mortgage interest rate drops to 4.25% (4.45% of the five-year lpr-20bp), the current mortgage interest rate is only 20bp lower than the loan weighted average interest rate, while the lowest mortgage interest rate in the three rounds of real estate easing cycle in history is usually at least 60BP lower than the loan weighted interest rate.
Secondly, the excessive decline of mortgage interest rate will squeeze the space for commercial banks to make profits to real enterprises. In 2021, the increment of individual housing loans was 3.8 trillion, and the interest rate of housing loans was reduced by 100bp, corresponding to a decrease of 38 billion yuan in the income of commercial banks. In contrast, the RRR reduction in April only alleviated the cost of financial institutions by 6.5 billion yuan. If we want to hedge the impact of the decline in mortgage interest rates on commercial banks, this means that the increment of individual housing loans this year is at least 4.65 trillion, and the increment of housing loans is about 22%. Since 2017, only the increment of individual housing loans in 2019 has been positive year-on-year (12.8%). From this perspective, the sharp decline of housing loan interest rate is bound to have a great impact on the profits of commercial banks, which will further reduce the space for profit giving enterprises of commercial banks.
Third, at present, residents' willingness to save is the highest since 2002, while the year-on-year deposit for house purchase is the lowest since 2011. From 2002 to 2019, the proportion of residents inclined to save more was 47.6% at most. At present, the proportion of residents inclined to save more was 54.7%, which was 7 percentage points higher than that from 2002 to 2019. The continuous rise of residents' willingness to save has led to the continuous decline of the year-on-year growth rate of residents' house purchase loans. In addition, after the rolling sum of residents' house purchase deposit in recent March, it was - 37% year-on-year, the lowest since 2011. To sum up, it can be seen from the comparison that at present, residents have strong willingness to save and weak ability to pay the house purchase deposit, which also indicates that the real estate policy may be promoted more vigorously.
To sum up, this round of real estate policy may be a difficult trade-off under various restrictions. On the one hand, house prices in second tier cities that may allow some people to flow in may exceed 5% year-on-year. On the other hand, it may alleviate the debt cost of commercial banks by reducing the reserve requirement, so as to further promote the decline of housing loan interest rates.
Risk tips:
Real estate policy exceeded expectations, monetary policy exceeded expectations, and the epidemic exceeded expectations.
