Potential "death cross" looms if CCL continues decline

CCL home price index has fallen again.

It has been noted that housing is both a consumption and investment item, and unlike consumer goods where lower prices should translate to higher consumption, the investment aspect can sometimes be driven by momentum and sentiment.

According to a research note from Barclays, it questioned how this aspect can be modeled. In some ways, the report said, just as technical analysis can be useful in understanding stock momentum, it may also shed light on home price momentum.

With the recently released CCL home price index falling for a fourth straight week, down 0.85% w/w, what are the next key levels to watch, Barclays asked. As the CCL’s 3-month and 12- month moving average is now at 145.30 and 139.95, a potential “death cross” looms if the CCL were to retrace to 136.08 (4% below current levels).

Beyond that, from a support perspective, using the 2003 SARS trough as base, Fibonacci retracement at 76.4% suggests potential support at 119.74. This would return home prices back to June 2014 levels and 16% below the CCL’s latest 141.76 reading – some food for thought.

Here's more from Barclays:

Technical analysis versus home prices: In How old are you and what is your collective memory? we noted that the local property market is as much driven by fundamental as mass psychology. In this regard, the property market is similar to the stock market where cheap/ expensive valuations can sometimes last for a while until a catalyst changes the consensus view.

Just as technical analysis can complement fundamental stock analysis, what are the implications if one were to apply technical analysis to home price movements?

Watch out for a potential “death cross”: Since setting its all-time high of 146.92 on 13 September, the CCL home price index has since retraced by 3.51% to 141.76, falling an average 0.51%/week over the past seven weeks.

At this point, the CCL’s 3M and 12M moving average are at 145.30 and 139.95. If one assumes that the recent pace of decline were to continue, this would suggest a “death cross” could form in eight weeks’ time when the CCL reaches 136.08 (4% lower than the current levels).

Fibonacci retracement suggests potential support at 119.74: Should this come to pass, we believe the focus would then turn to potential support levels. If one were to apply Fibonacci retracement using the 2003 SARS trough as a base, a pull back to 76.4% support would put the CCL at 119.74.

This would place Hong Kong home prices back to June 2014 levels and 16% below current levels. On the other hand, if one were to use the 2008 GFC bottom as a starting point, then a retracement to 76.4% would put the CCL at 125.63, back to August 2014 levels and 11% below the CCL’s latest 141.76 reading – some food for thought.