As China's housing slump deepens, consumers open their wallets to spend

China’s housing market remains stuck in the mud despite ongoing government support, even as consumer spending shows signs of life.

New home prices dipped slightly in May from the previous month, extending a two-year slump, and fell 3.5% year-over-year, according to data released by China’s National Bureau of Statistics and analyzed by Reuters. Property investment dropped over 10% in the January-May period compared to a year earlier, with new construction starts plunging some 23%.

Smaller cities and industrials feel the burn

Analysts say smaller cities remain the most fragile, with home prices in cities dubbed Tier 3 and Tier 4 – an unofficial but commonly used ranking of cities by size and prominence – continuing to slide faster than those in major hubs such as Shanghai. That trend of greater housing-market weakness outside major Chinese cities is a long-running one which analysts have been following for several years.

While Beijing has rolled out rate cuts and loosened some mortgage rules, sentiment remains poor after years of unfinished developments and developer defaults. Home prices are now projected to fall nearly 5% this year and remain flat through 2026.

Alongside the housing-market slowdown, industrial and fixed-asset investment are slowing. Factory output growth dropped to 5.8% in the first five months of 2025, down from 6.1% in the prior period. Overall fixed-asset investment, which includes infrastructure and manufacturing, rose just 3.7% — possibly reflecting the drag from the housing sector.

Retail sales offer silver lining; trends have implications for global economy

In stark contrast to the slowdown across housing and industry, however, Chinese consumers appear motivated to open their wallets and spend on goods. Retail sales grew 6.4% in May, topping expectations and sharply accelerating from April’s 5.1% rise. A government trade-in program is helping spur purchases of home appliances and other items, providing a much-needed boost to the overall economy.

Economists say the mixed data may compel the Chinese government to increase fiscal stimulus and further cut interest rates if it hopes to meet its annual GDP growth target of 5%. But with trade tensions lingering and property malaise deepening, even a retail rebound may not be enough to reignite China’s economy.

And that has implications for the global economy. As the planet’s second-largest economy, China remains a critical driver of growth well beyond its borders. What happens in its property and consumer sectors has ripple effects across global supply chains, commodity markets, and investor sentiment. In short, when China pauses or spends, the world feels it. So, it's no wonder its economy finds itself under the microscope now.