The Chinese government has been trying to temper heating housing prices over the past two years, and recent data suggests it has had some success. Home prices were flat or falling in the majority of China's top cities, the Wall Street Journal reported, hinting that nationwide prices might now be on a downward trajectory.
Prices could fall as much as 20 percent in some cities, the Journal reported, and financing problems could halt new projects under way, further hobbling the Chinese housing market. Though experts see prices falling further, fears of a full-blown market meltdown are probably overblown.
"I don't think we'll see a repeat of the U.S. experience," says Michelle Gibley, senior market analyst at Charles Schwab. That's because Chinese homeowners still have high levels of equity, and, unlike many of their American counterparts, haven't leveraged themselves to the gills to purchase a home.
"[The Chinese] have a cushion to absorb any kind of price declines and they're not using debt to make a purchase," Gibley adds.
Still, the underlying concern remains whether the trend in declining prices will be gradual or severe and how it will impact China's overall economy.
Goldman Sachs among other financial firms lowered its forecast for China in October, cutting growth projections from 9.2 percent to 8.6 percent. While that's still comparatively robust growth, the slowdown is troubling, especially as the United States and Europe face their own set of economic challenges, making continued growth in China even more important for the global economy.
But a cooling real estate sector might also go hand-in-hand with a general economic slowdown for China, which some say has already started. Inflation has eased soothing fears of an overheating economy, but export growth slowed according to numbers released Thursday, underscoring the weakening demand for China's products in Europe and the U.S.
That's troubling as China strives to convert its export-based economy into a domestic demand-based economy, especially since an increasing amount of Chinese citizens' wealth is locked up in real estate.
"You have the overall weakening economy as a backdrop, so the slowdown in the real estate market could take a sharper turn," says Todd Lee, managing director of IHS Global Insight's greater China division. "That's a worry because increasingly real estate is playing a more and more important role in the Chinese public's wealth portfolio."
If the bottom drops out of the Chinese real estate market, it could mean a serious slowdown for China and potentially the rest of the world as consumption and demand tapers off in China. But China's political system is different from that of the United States or Europe, and officials have much more liberty to introduce "control and command-type" measures, Lee says, something a pure market economy can't do.
Chinese officials haven't announced any plans to revise current monetary policy or smooth out housing prices. Looking forward, Lee predicts a certain amount of volatility as prices level out from their meteoric highs.
"[The market] doesn't have to collapse, but it has to slow down at the rate of increase to let the overall economy, the fundamentals, to catch up," Lee says.