China housing prices continued to decline in June, while European luxury goods demand remains under pressure from the wealth effect

Overview

This report examines the implications of China's June housing market data for the European luxury goods sector. Morgan Stanley believes that China's property market remains weak, with conditions continuing to deteriorate both month-on-month and year-on-year in June. Declines in secondary home prices, combined with divergent trends in listings and store visits, may cause the overall decline in home prices to accelerate slightly in the third quarter. Since Chinese demand accounts for more than 30% of European luxury goods consumption and more than 70% of Chinese household wealth is tied to real estate, weakness in housing assets may continue to affect luxury goods consumption and investor sentiment through the wealth effect.

Core views

The core view is that China's housing market has not yet shown sufficiently clear evidence of recovery, so a cautious stance should be maintained overall. The decline in secondary home prices in June was similar to that in May, but price declines remained broad-based. A slight increase in total listings, an unexpected cooling in store visits, and the seasonal off-peak period may cause secondary home sales in major cities to turn negative year-on-year in the third quarter. At the same time, first-tier cities may still have room for modest price increases because of more favorable supply-demand conditions. The report also points out that gains in the A-share market over the past 18 months have partially offset the decline in housing asset values, meaning the negative impact on luxury goods consumption is unlikely to be one-directional or linear.

Analysis framework

The report applies a transmission framework from macroeconomic property data to consumer demand, combining secondary home transaction prices, listings, new listings, visits to brokerage stores, resilience in first-tier cities, declines in housing wealth, and changes in A-share market capitalization to assess the potential impact of China's consumer wealth effect on the European luxury goods industry.

Methodology notes

• Macro-to-industry transmissionReal estate wealth effect analysis

  Changes in housing asset prices affect households' perceptions of wealth and their willingness to spend on high-end goods.

  The report combines the high share of real estate in Chinese household wealth with the European luxury goods industry's heavy reliance on Chinese demand to assess the pressure that falling home prices may place on luxury goods consumption and sector sentiment.

• Market structure assessmentK-shaped performance

  Different cities and asset classes show divergent performance.

  Although the overall housing market is weak, some first-tier cities remain resilient. At the same time, rising A-share market capitalization has partially offset the decline in real estate asset values, resulting in divergent rather than uniformly synchronized declines.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• European luxury goods stocks

  Chinese demand and the household wealth effect are important demand drivers.

  Strengths

  Chinese consumption accounts for more than 30% of total European luxury goods spending. If wealth effects in first-tier cities and equity markets remain resilient, demand for leading brands may remain relatively stable.

  Weaknesses

  Continued declines in housing asset prices may suppress willingness to spend on high-end goods and undermine investors' confidence in sector growth.

  Comparison

  Compared with China's overall property market, first-tier cities are performing more steadily; compared with housing assets, rising A-share market capitalization provides a partial wealth offset.

  Risks

  If the decline in home prices accelerates in the third quarter or secondary home sales turn negative year-on-year, expectations for luxury goods demand may remain under pressure.

• China property market

  As a core component of Chinese household wealth, it affects consumer confidence and luxury goods demand.

  Strengths

  Some first-tier cities may still see modest price increases because of more favorable supply-demand conditions.

  Weaknesses

  Secondary home prices continue to decline overall, while trends in listings and cooling store visits indicate that the foundation for recovery remains unstable.

  Comparison

  First-tier cities are more resilient than the overall 85-city sample, while the broader market remains weak.

  Risks

  The seasonal off-peak period, weakening policy effects, and the completion of pent-up demand releases may cause prices to decline more rapidly in the third quarter.

• China A-share market

  As a partial offset to the decline in housing assets, it affects households' perceptions of total wealth.

  Strengths

  A-share market capitalization increased by approximately RMB 33 trillion over the past 18 months and by approximately RMB 10 trillion year-to-date.

  Weaknesses

  The equity-market offset may not cover all consumer groups, and market volatility may undermine the stability of the wealth effect.

  Comparison

  The year-to-date increase in A-share market capitalization exceeds the decline in housing asset values, but since December 2024 it has not fully offset the approximately RMB 40 trillion destruction of housing asset value.

  Risks

  If A-shares decline, the negative wealth effect caused by falling home prices may intensify again.

Key data

• June secondary home transaction pricesMonth-on-month -0.5%, year-on-year -10.5%Across 85 sample cities, the month-on-month decline was broadly in line with May's -0.5%.
• Cumulative decline from the June 2021 peak-38%Secondary home prices have fallen cumulatively since the June 2021 peak.
• Share of sample cities with price declines94%Secondary home prices declined month-on-month in 94% of sample cities in June.
• Share of cities with accelerating declines56%Below May's 64%, indicating that the share of cities with accelerating declines decreased.
• First-tier city price performanceMonth-on-month -0.1%First-tier cities were relatively more resilient, mainly supported by more stable secondary home sales.
• Total secondary home listingsMonth-on-month +0.2%Total listings edged up in approximately 50 sample cities in June.
• New secondary home listingsMonth-on-month -3%, year-on-year -13%New listings continued to decline, with month-on-month decreases in 76% of cities.
• Visits to brokerage storesMonth-on-month -16%, year-on-year flatVisits in 45 sample cities unexpectedly cooled further in June.
• China's share of European luxury goods consumption>30%The report uses this ratio to illustrate the importance of China's macro consumption environment to the European luxury goods sector.
• Share of real estate in Chinese household wealth>70%The real estate wealth effect is the core transmission channel through which the report assesses risks to luxury goods demand.
• Decline in housing asset value since December 2024Approximately RMB 40 trillionThe report estimates the scale of housing market value destruction as of June 2026.
• Increase in A-share market capitalization over the same periodApproximately RMB 33 trillionGains in the Shanghai and Shenzhen A-share markets partially offset the decline in housing asset values.
• Year-to-date change in A-share market capitalizationApproximately RMB +10 trillionThis exceeds the approximately RMB -6 trillion decline in housing asset value over the same period.

Impact & implications

For the European luxury goods sector, the downturn in China's property market remains an important risk variable and may affect revenue growth expectations through declining household wealth, weaker consumer confidence, and delayed high-end consumption. However, gains in the A-share market provide some offset to the wealth perceptions of certain consumers, making the impact more likely to be differentiated: high-end brands, first-tier cities, and beneficiaries of equity-market gains may show greater resilience, while consumer groups more sensitive to real estate wealth face greater pressure.

Risks

• Secondary home prices in China may decline more rapidly month-on-month in the third quarter due to lower store visits and seasonal factors.
• Secondary home sales in major cities may turn negative year-on-year in the third quarter.
• Declining housing asset values may continue to weigh on Chinese consumer confidence and European luxury goods demand.
• Weaker policy effects and the completion of pent-up demand releases from March to May may leave the recovery momentum insufficient.
• The offset provided by rising A-shares against declining housing assets may be uneven and unable to fully counter the impact of the property downturn.
• Morgan Stanley discloses investment banking, shareholding, or other service relationships with several covered companies, and investors should be aware of potential conflicts of interest.

What to watch

• Whether the month-on-month decline in secondary home transaction prices accelerates in the third quarter.
• Whether visits to brokerage stores remain below seasonal trends.
• Whether home prices in first-tier cities maintain resilience or rise modestly.
• Whether the divergence between new listings and total listings widens.
• Whether secondary home sales in major cities turn negative year-on-year.
• Whether changes in China A-share market capitalization can continue to offset the decline in housing assets.
• Changes in sales, customer traffic, and management guidance from European luxury goods companies in the China market.