FORTUNE — China’s housing market is heading downward, how severely no one knows. The government released data this week showing price declines in more cities. But analysts at Gavekal Dragonomics have zeroed in on the cause, and their findings are encouraging for those expecting China to muddle through a property downturn.
Instead of small, ghost cities driving the price declines, Gavekal analysts Rosealea Yao and Thomas Gatley found that China’s hot coastal markets are leading the declines. Expensive coastal cities include Beijing, Shanghai, Guangzhou, Shenzhen and others that in past few years have posted property gains of 20%-30% a year. Gavekal’s conclusion is that these areas are correcting themselves.
Developers had borrowed heavily to build in expensive coastal towns, driving up prices further while stretching themselves.
“And when sales growth slowed in late 2013,” the analysts write, “developers starting cutting prices in some cities to boost sales and cash flow. The price cuts were focused in cities with high prices, because that’s where they had the best chance of boosting sales. Unfortunately, those large, high-profile cities serve as bellwethers for the national market, and as word of falling prices spread, sales and sentiment were hurt across the country.”
The chart shows the rise, and fall, of pricey coastal markets.
Gavekal and others are expecting a housing downturn to last for at least half a year. While more bearish researchers believe China’s building is unsustainable, and a full-bore meltdown is coming, right now the ghost towns they often cite aren’t driving a downtown.