Today’s topic is about stock investors and mortgage holders. In a sense, these two groups represent the two largest reservoirs for the Chinese yuan: the stock market and the real estate market. According to economic theory, the stock market is supposed to be a barometer for the real estate market, but Chinese developers clearly disagree. They unanimously believe that the real estate market, as a pillar industry of the national economy, is the true barometer. The poet Su Shi once wrote, “Ducks are the first to sense when the spring river warms.” In reality, it is likely the stock investors and mortgage holders who truly reflect the state of the economy.

Recently, a joke made the rounds titled “Three-Year Trends in the Financial World”: in 2022, investing in consumer goods; in 2023, in semiconductors; and in 2024, in promising entrepreneurs. In 2022, investors sought Series A funding; in 2023, Series D; and in 2024, rooftop analysts. In 2022, the focus was on macro trends; in 2023, on market sectors; and in 2024, on gatekeeping. Developers ran to the government in 2022, to the banks in 2023, and to high-net-worth clients in 2024. In 2022, people selected financial products; in 2023, private equity. Investors expanded their portfolios in 2022, leveraged their investments in 2023, and checked their credit in 2024. Although the joke is humorous, it reflects reality and is both laughable and tear-inducing. However, it feels like something is missing—homebuyers. To follow the pattern above, in 2022, homebuyers aimed to maintain housing prices; in 2023, to secure completed projects; and in 2024, to keep their jobs.

Stock Market Trends and Challenges

Let’s start with the stock investors. Looking back at the A-share market over the years, one feature stands out: short bull markets and prolonged bear markets. Historically, bull markets have averaged 34.8 months, while bear markets have lasted an average of 52.5 months, making bear markets 1.5 years longer than bull markets. Notably, since 2000, bull markets have lasted for 37 months on average, with a typical duration of 18.5 months, whereas bear markets have stretched for 173 months, averaging 57.7 months. In comparison, bear markets are three times longer than bull markets.

So how can one understand the phenomenon of short bull markets and long bear markets in the A-share market? There are many perspectives to consider. From the standpoint of the market mechanism, the A-share market benefits corporate financing but is less advantageous for investor returns. When the Chinese stock market was first established, its primary purpose was to facilitate financing for state-owned enterprises. Although this structure has since changed, the market now plays a multifaceted role in providing financing. The astute observer will note the key term: a provider of financing.

Consider these statistics: in China’s financing system, the banking sector dominates, with indirect financing through bank loans accounting for 70% of the total. This contrasts sharply with developed countries, where direct financing through equity and bonds makes up about 70% of the total. As a result, only state-owned and large enterprises can access the majority of financing, leaving others to find alternative ways. This explains why so many companies compete to go public, as listing provides access to funding. From 2021 to 2023, China led the world in both financing volume and the number of IPOs, surpassing the United States.

Of course, despite leading in some aspects, one thing not included is market capitalization. Data shows that the total market capitalization of the A-share market in 2023 was about 87 trillion yuan. However, in the same year, the combined market value of six U.S. tech companies—Apple, Microsoft, Google, Amazon, Nvidia, Facebook, and Tesla—exceeded $12.4 trillion, or more than 80 trillion yuan. To put it bluntly, many companies list primarily to raise funds, followed by various forms of share reduction and cash-out schemes. For instance, Zhejiang Guoxiang used a backdoor listing to go public a second time. On the reduction side, tactics include divorcing to technically reduce shares, among other creative ways. When considering this information, it becomes clear that in such a system, retail investors trying to make money is like fetching chestnuts from the fire—extremely risky. In the end, it is the stock investors who suffer the most.

Real Estate Market and Homebuyer Perspectives

Let’s talk about home buyers. In the past, buying a house followed a simple rule: “Buy and you’ll earn,” and “It’s better to buy earlier than cleverly.” However, the situation is different now: not buying is the new way to save.

On the land market side in 2023, the residential land transaction area in 300 cities nationwide declined by more than 20% year-on-year. In terms of market supply and demand, the sales area of newly built commercial housing in the top 100 cities fell by approximately 6% year-on-year. Regarding development and investment, the national real estate development investment in 2023 totalled 11.09 trillion yuan, a 9.6% decrease from the previous year. In the secondary housing market, the cumulative price drop for second-hand homes in 100 cities was 3.53%, an expansion of 2.76 percentage points compared to 2022. Overall, the trend in housing prices remains sluggish.

However, among the sea of green, there are two bright spots. Here’s a question: do you think new home prices in 2023 rose or fell? The answer might surprise many. In the new housing market, prices in 100 cities cumulatively increased by 0.27%. Given the reports of a sluggish property market and homes not selling, how could prices still rise? It’s important to note that this refers to new homes, not second-hand ones. In the new home market, due to external factors, overall prices haven’t dropped much, leaving room for further declines.

The second bright spot is that in first-tier cities, newly built commercial housing saw an average monthly sales volume of 670,000 square meters, an annual increase of approximately 4%. In second-tier cities, monthly sales averaged 450,000 square meters, down 3.7% year-on-year. Third-tier cities experienced a sharper decline, with an average daily sales volume of 160,000 square meters, down 11.4%. The urban disparity is increasingly evident: some cities thrive while others struggle.

So, what is the current attitude of homebuyers? The China Index Academy conducted a sample survey in January across 30 provinces and around 267 cities. The respondents included those born in the 1970s through the 2000s. The results showed that the primary group interested in buying homes ranged from those born in the mid-1980s to the mid-1990s, corresponding to an age range of 26 to 40. However, the proportion of people planning to purchase a home within six months dropped to 19.9%.

This survey indicates that there is still a significant demand for home buying, which is understandable since everyone desires to own their own home. The top three reasons for buying are to upgrade or replace their current home, to improve essential needs, and to secure school district housing.

Previously, people lived in small apartments, but now they may want to bring in their elderly parents, or perhaps their two children have grown and need a larger house. Or, they may grit their teeth and buy a home in a good school district to give their children access to better educational resources.

It’s often said that buying a house means sacrificing oneself and losing personal freedom, only to become a wage earner for life. But upon reflection, most people don’t want that fate. Those in this age group generally have ageing parents and growing children. They worry about their elderly parents who still live back home, and they don’t want their kids to fall behind in educational opportunities. The weight of responsibility compels them to buy a house, believing that by working a bit harder, their families can live better lives.

Comparing Financial Stressors

Who is more stressed, stock investors or mortgage holders? Stock investors risk losing their entire savings and sometimes enter the market secretly, hiding it from their families. When they incur losses, they have to swallow the bitter pill alone. Mortgage holders, though more open about their investments, often drain six wallets to afford a down payment. Those who haven’t moved in fear the project will remain unfinished, and those who worry about losing their jobs and defaulting on their loans.

From an investment perspective, stock investors argue that buying a house is a bad deal, as 30-year loans end up costing more than the principal. Homebuyers, on the other hand, think it’s unwise to invest in stocks because one might end up with worthless shares. They feel that while one might regret investing in stocks, finding a new job is more pressing when struggling to pay a mortgage. Beyond being stock investors or mortgage holders, everyone also holds other identities—we are sons or daughters to ageing parents and parents to infants in swaddling clothes.