Investing.com -- Morgan Stanley lowered its forecasts for China's real estate sector after new home sales remained weak in July and property prices continued to decline across most markets.

National primary home sales fell 8.9% year-over-year by value and 11.8% by volume in July, according to the investment bank. For the first seven months of 2026, sales declined 13.1% by value and 11.8% by volume compared to the same period last year.

The NBS 70-city home price index dropped 0.2% month-over-month for primary homes and 0.3% for secondary homes in July. More cities recorded flat or lower prices during the month. Tier 1 cities showed milder price gains, with primary home prices flat and secondary prices up 0.2% month-over-month in July, compared to increases of 0.1% and 0.3% in June.

Construction activity remained weak, with new starts falling 28% year-over-year and completions down 19% in July. Real estate investment declined 19.2% in the first seven months of 2026, compared to an 18.0% drop in the first six months.

Secondary home sales in 25 higher-tier cities continued to soften, reaching approximately 7% year-over-year in the latest week, down from 10% in June and 9% in July.

Morgan Stanley expects home prices to continue dropping month-over-month across most markets, potentially at a faster pace during the summer season. The bank cited muted home purchase intentions and limited policy support as factors that could challenge home sales in coming months.

The investment bank recently lowered its full-year forecasts, stating that a sluggish land market could hamper both real estate investment and primary home sales in coming quarters due to limited supply of new launches.