Will housing prices keep slowly declining? An analysis from a trading perspective

Hello everyone, welcome to Uchiha's short-term real estate analysis. Does it seem strange to see real estate analysis on a crypto platform? But I think it's quite interesting. Trading platforms let everyone speak freely about their views on finance.

For us Chinese, housing is an asset that simply cannot be ignored. People always hope to own a home when they're young, so they can get married, have children, educate them, retire, and even benefit from the home's financial and social attributes.

First, in China, apart from those who bought homes outright at low prices or took out mortgages in the early days, most people borrowed heavily to buy. You may not know this, but when I was young, in 2015, many people around me were very conservative about buying homes. They paid for things in full, even if it meant borrowing from relatives, and generally made sure to repay those loans within 3–5 years. People who really put down only 30% started appearing after 2015. They were mostly born between 1980 and 1985, and had grown up during the economic upswing of the 1980s. They were confident in China's economy and believed their future jobs would bring in more income, so they dared to commit 30 years of future savings to buying a home. Their children, mostly born after 1995, have experienced the real estate downturn and are actually reluctant to buy homes.

First, let's look at the main groups of mortgage borrowers today.
From a trading perspective, people born in the 1980s are the ones most likely to be trapped in long positions. Buying a home is much like trading: rising and falling prices are like funding rates, steadily eating away at your principal. The mortgage interest rate itself is also a form of leverage. At 3.4%, the total principal and interest repaid comes to three times the principal, equivalent to 3.3x leverage. Many people think of their homes as assets, but these assets are losing value rapidly. From 2021 to now, prices have nearly halved, meaning that a 30% down payment has been cut to less than half, severely eroding people's principal!!

First, we need to understand the composition of trapped holders and their liquidation prices.

1. Largest group: ordinary white-collar workers (60%+)
Engineers in internet and manufacturing, employees of state-owned enterprises and public institutions, education and healthcare workers, and ordinary company employees.

- Income: Most households earn 8k–15k per month. Individuals earning over 20,000 a month are at the upper end of this group, not the norm. Many households in third- and fourth-tier cities earn only 5k–9k a month, and rely heavily on parental support for their down payments.
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- Motivation for buying: A home for marriage or to access a good school district; they buy just one home to live in, use conservative leverage, and keep mortgage payments to 30%-40% of their income.
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- Characteristics: Stable cash flow, but a strong fear of losing their jobs. As long as they stay employed, they will keep making mortgage payments even if prices fall. This group has the lowest bad-debt rate.

2. Second tier: self-employed people and small business owners (around 20%, with high rates of bad debt)
Restaurants, building materials, trading, processing factories, and small construction contractors
- Income characteristics: When business is good, they can easily make 20,000+ a month or even more, but their income is highly unstable, with no fixed salary; when the market is good, they dare to leverage up to buy a second or third investment property.
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- Risk: A downturn in business or a halt in payments can immediately wipe out cash flow. This group makes up the largest share of overdue mortgages and homes sold at auction.

3. Third tier: mid- and senior-level executives and experienced employees at major companies (under 10%)
Mid-level staff in major companies, finance, and real estate, with stable household income of over 20,000 a month, often 30,000–50,000.

- Characteristics: The main group trading up to larger homes between 2018 and 2021, buying larger units in prime locations; their income potential is high, but they face significant risk of being laid off in mid-career.
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- They generally don't max out their leverage, have strong resilience to risk, and rarely stop making payments voluntarily.

4. The remaining small group: pure investors (multiple properties)
Many who speculated on housing at the time also took out business loans and mortgage-backed loans, pushing leverage very high. They are the most deeply trapped and have suffered the greatest losses.

So, why are housing prices falling? It's the same principle as short selling: not because there are many people who are bearish, but because people aren't buying, while the flow of sellers is steady but not concentrated. That's why the center of gravity of prices keeps moving lower. So what will be the outcome of a gradual decline? Will people born after 2000 get another chance in real estate? Does Chinese housing still have a future? When will prices truly bottom? To answer these questions, we need a comprehensive analysis of the current situation!!!
I think real estate does have a future, but we have to wait until all the trapped holders are released—that is, until we see a high-volume crash, when the trapped holders are wiped out!!

You may not understand how a mortgage can be wiped out. Isn't that something that only happens in crypto?

Let's first align on the definition: in real estate, being "wiped out" means that the proceeds from selling a home aren't enough to pay off the outstanding mortgage. In other words, the owner is insolvent and has negative equity, and still has to cover the shortfall after the property is sold. The logic is similar to getting wiped out on a crypto contract.
Ranked from highest to lowest risk, these are the groups among people born in the 1980s and 1985s most likely to be wiped out:

1. Small business owners who bought at the 2020–2021 peak and layered on business loans or mortgage-backed loans (highest risk)

- Characteristics: Small construction contractors, building-materials businesses, traders, and restaurant owners; when business was good, they had strong-looking revenues and layered business funds and mortgages together as two levels of leverage to buy second and third investment properties. Many cobbled together their down payments with borrowed money and consumer loans.
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- How they get wiped out:
Business receipts fall, cash flow dries up, and they are forced to sell. They bought at the peak, and after a 25%-40% price decline and a discount on the resale market, the selling price is less than the outstanding mortgage.
Key point: They have multiple debts, not just one. Business loans are recourse loans, and if the home auction proceeds aren't enough to repay the debt, the bank will continue to sue and recover the shortfall. They lose the home and are left with debt—that's being truly wiped out.
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- They also make up the largest share of homes sold at auction.

2. High-leverage pure investors in distant suburbs, new districts, tourism developments, and third- and fourth-tier cities

- Characteristics: Mostly people born in the 1980s, especially after 1985. Back then, they bought into promises of urbanization and school-district benefits. After using up their eligibility for a first home, they still went ahead and bought a second one with a high down payment; many bought outright and then took out loans against the property. They don't live in these homes, and rental income doesn't cover the mortgage.
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- How they get wiped out: Liquidity in the area dries up, and there are few buyers to take over. The homes sit unsold for six months or a year, and the only way to sell is to slash the price. The decline in the area can easily wipe out the down payment.
Example: A 1 million home with a 200,000 down payment falls by 300,000; after the sale, the proceeds aren't enough to repay the mortgage, leaving the owner in debt.
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- The problem: Rents are extremely low and can't offset the mortgage payments at all; owners rely entirely on fresh funds to cover them.

3. Families who traded up at the peak (sell one, buy one, and take on leverage to upgrade)

- Characteristics: Typically people born after 1985 upgrading their homes, selling an old home and taking on more debt to buy a larger one in 2020–2021; they put all the appreciation from the old home into the new one, with almost no cash buffer, and mortgage payments account for more than 45% of household income.
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- How they get wiped out:
They already realized the gains on the old, smaller home, and the new home was bought right at the peak. If either spouse loses their job, they can't keep up with the mortgage and are forced to sell. After housing prices fall, the value of the new home no longer covers the outstanding loan.
This group is hard to spot: they're not speculators but owner-occupiers looking for a better home. They thought it was a safe move, not realizing that both sides of the transaction could be hit by falling valuations.

4. Single-income households with high-paid mid-level professionals (major companies, real estate, or finance) who depend on one high salary

- Characteristics: One spouse earns a high salary, with peak monthly income of 20,000–40,000, and the household's income is heavily dependent on that one person. Their confidence in that high income led them to take on high mortgage payments; the household has very little in savings, and their income expectations are based on the industry remaining strong.
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- How they get wiped out: After mid-career layoffs and industry contraction, their income falls off a cliff. Once a high-paying job disappears, it's hard to quickly find another job with similar pay. After struggling for a few months, they are forced to sell. The discounted sale price of a home bought at the peak wipes out their down payment, leaving them with negative equity.

Unlike ordinary dual-income households, both spouses in dual-income households provide a higher income floor, making it less likely for their cash flow to suddenly dry up.

5. First-time buyers who rely on consumer loans and loans from friends or relatives for their down payment

- Characteristics: They need a home to get married, but their income is low. They scrape together a down payment just to get onto the property ladder, leaving virtually no safety net; their budget was already stretched.
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- How they get wiped out: Even a small fall in housing prices wipes out their down payment; if they face a shock like job loss or illness, selling the home immediately leaves them underwater.
This group isn't the largest, but has the least room for error. Even a small setback can wipe them out.

Being "wiped out" in real estate isn't just about falling housing prices. It's the combination of layered leverage, fragile and concentrated cash flow, no financial cushion, and being forced to close out a position by selling a home during a downturn. Small business owners who have layered on business loans are at the highest risk, followed by families who traded up at the peak and investors with multiple homes in distant suburbs.

So, what will the outcome of all these years in real estate be?

A high-volume crash. 2021–2022 was the final high-volume push to the top.
From 2023 to 2026, prices have been slowly declining from high levels on low volume. Prices tend to move toward levels where more transactions can take place. In these years, there has been little volume on the way up and more volume on the way down, showing that the market doesn't accept current prices; only falling prices can bring in transactions.
Especially since 2023, the down payment ratio has fallen from 30% to 20%, and now to 15%. This means leverage is getting higher and it is getting easier to be wiped out. This will continue until 2030,
when this negative feedback loop will end, because in 2026, the share of
all-cash home purchases will keep rising and exceed half.
People trapped at the 2021–2022 peak have already seen their equity wiped out and moved into negative equity. Debt payments are fixed, so they have to sell their homes to repay their debts. These people will reach their unlocking window in 2026–2027. They are precisely the group that accounted for the largest share of real estate transactions in the past. Guess how aggressively they'll dump their homes to make sales and repay their debts? Especially now, when transactions in the housing market are scarce, the order book is thin, and market depth is limited—it only takes a small sell-off to push prices down. People who bought cheaply in the 2000s have no debt and can hold out for higher prices; who knows how long those with debt can hold out? (First-tier cities will fall first, and second-tier cities will catch up with further declines.)

By now, you should be able to see a pattern. It's actually quite simple: when you see large numbers of homes going to auction and second-hand homes flooding the market, and the share of all-cash purchases keeps rising, that's when real estate will truly bottom out. That's also our opportunity. At that point, banks will face large amounts of bad debt, and insolvency will become increasingly common. If small and medium-sized banks start failing, panic will intensify dramatically. That's why I have been extremely bearish on bank stocks over the past two years. I won't chase their dividends. I believe that if real estate collapses, it will be bullish for gold and bearish for crude oil. Trends only move in the direction of least resistance. I think this is only a matter of time, so everyone can hold more and more cash and gold as they wait for our Minsky moment. People born after 2000 can also save more money over the next few years. I think housing prices will truly stabilize in 2030!!!!

I want to write a little more about this issue. Many people in China spend their whole lives living in a scam, especially young people: "Just get into a key high school, then everything will be fine. Just get into university, then everything will be fine. Just get a job and get married, then everything will be fine!!"
After the gaokao, you get an undergraduate admission letter and feel that your future is bright. You enter society with great enthusiasm, only to find that the odds of succeeding are less than 10%.
You think university will be open and free, but you find it's lifeless every day, with none of the campus romance you imagined!
You think everything will be fine once you graduate,
but then you get a job that's worse than scavenging. This is the era we live in.

A particular economic cycle, stage of life, or international environment—aren't they all like a K-line? History is the price movement of the past, and the future is the trend ahead. For example, real estate was in an uptrend more than ten years ago; you just had to follow the trend. Now it's in a downtrend, so you have to go short, not long.
The people who entered the market at the 2021 peak have now almost seen their investments halved!
Trading knowledge can help you make sound judgments! There are many other things you can also look at through the lens of trading.

As a young person, I think more important than buying a home, taking on a mortgage, working for someone else, or looking for a job is breaking free of three cognitive shackles:
1. The shackles of family values
2. The shackles of the long-term influence of the education system
3. The shackles of social norms