Surprise, surprise: Hong Kong's home prices actually jumped 9.3%

Were we all wrong?.

Although the increased land supply in Hong Kong has already resulted in lower land prices, the outward shift in the supply curve has yet to impact on home prices.

According to a research report from Barclays, in fact, instead of falling, home prices have actually risen by 9.3% in the year-to-date.

Frequently, some argue that since it takes four to five years to complete a project, housing supply remains constrained in the near term.

While near-term supply is still low, Barclays believes it is unrealistic to assume that the sites are never built.

As these raw land sites are eventually converted into completed properties, Barclays believes the same supply-demand dynamic that we have observed in the land sale market should repeat in the completed homes market.

Here's more from Barclays:

What may add an additional dimension to the housing supply-demand dynamic in the coming years is the potential for demand to pull back in the face of rising rates.

As illustrated, the combination of demand pulling back against an outward shift in supply should theoretically result in home prices dropping even more.

Although this dynamic makes theoretical sense to us, judging by the fact that home buyers have readily snapped up 14,857 primary units and pushed up secondary home prices by 9.3% at this point in the year, this suggest that home buyers may not be that forward looking.

This brings us back to our original question of whether supply-demand determines price or if it is the other way around.