China's housing market is showing a clear sign of division, with major cities beginning to stabilize while smaller ones continue to struggle.
In February 2026, new home prices in China's Tier-1 cities—like Beijing and Shanghai—stopped falling for the first time in many months, registering a flat 0.0% change. This is a significant development, suggesting that the government's intensive rescue efforts are finally taking hold, at least in the nation's economic heartlands. However, the picture is less rosy elsewhere. Prices in Tier-2 and Tier-3 cities continued to drop, by -0.2% and -0.3% respectively, highlighting a fractured and uneven recovery.
This divergence didn't happen overnight. It's the culmination of a multi-pronged policy push that began nearly two years ago. First, the landmark package from May 2024 drastically improved affordability by cutting minimum down payments to as low as 15% and scrapping the national floor on mortgage rates. This provided the foundational support for the market. Second, major cities like Beijing and Shanghai took targeted action in late 2025, rolling back local home-purchase restrictions. This unleashed pent-up demand from households with the strongest financial capacity, creating a solid floor for prices in these core markets.
Third, the People's Bank of China (PBOC) has been ensuring that money keeps flowing. Through large-scale liquidity injections via its Medium-term Lending Facility (MLF), it has kept banks well-funded to issue mortgages and support property developers through the 'white-list' financing mechanism, which prioritizes funding for viable projects to ensure they get completed.
Despite these efforts, the scars of the property crisis run deep, especially in smaller cities. The lingering fallout from developer defaults, most notably the Evergrande liquidation, has shattered buyer confidence. Potential homebuyers in Tier-2 and Tier-3 cities are more worried about whether developers will actually finish and deliver the apartments they are buying. This, combined with weaker local economies and a massive overhang of unsold homes, explains why these markets are lagging so far behind.
Essentially, we are seeing a 'tale of two markets'. In Tier-1 cities, strong policy support and wealthier households are creating a bottom. But in the rest of the country, the path to recovery looks much longer and more uncertain, heavily dependent on restoring confidence and clearing the huge inventory glut.
- Tier-1/2/3 Cities: A classification of Chinese cities based on economic size, population, and political importance. Tier-1 includes major hubs like Beijing, Shanghai, Guangzhou, and Shenzhen. Tier-2 are provincial capitals and other large cities, while Tier-3 are smaller cities.
- MLF (Medium-term Lending Facility): A tool used by China's central bank (PBOC) to inject money into the banking system by lending to commercial banks for a medium term (usually one year), influencing interest rates and credit availability.
- White-list financing: A government mechanism where local authorities create lists of approved real estate projects that are deemed financially viable, directing banks to provide them with priority funding to ensure their completion.