Fundamentals and the volatility of real estate prices in China: A sequential modelling strategy (original) (raw)
Related papers
Long Term and Short term house price dynamics in China's first tier
Chinese Economy, 2019
This article identifies the main drivers and assesses housing bubbles in China's first-tier and second-tier main 13 cities' aggregated house prices for 2007Q2 through 2018Q4. The empirical analysis is conducted using robust econometric multiple frameworks, undertaken using the forms of OLS and VECM techniques. The outcomes suggest that house prices attain a long-run equilibrium every 7.14 quarters, with a short-term correction by their own macroeconomic forces including share performance, interest rate, and GDP. Our findings suggest the three macroeconomic drivers identified are effective to stabilize the housing markets. Governments could reduce large fluctuations on house prices and balance the countries' housing market, share market, and economic growth via setting appropriate monetary policies. In addition, real estate businesses and construction industries and households could set accurate finance plans and budgets to improve their resilience to economic shocks.
Evidence of a Housing Bubble in Beijing
Academic Journal of Interdisciplinary Studies, 2013
The price of residential housing in Beijing has increased at an annual nominal rate of 20 percent for the past decade. This rapid growth has happened in a period of rapid urbanization where rural people have moved to cities and towns and there is a rapid and sustained growth in per capita income. This paper reports on the findings from a purpose-designed survey administered to a total of 420 households in 16 districts in Beijing on the determinants of house prices. Our analysis reveals that housing prices in Beijing have deviated above the norms in terms of expectation and affordability. Economic fundamentals in the form of income growth and low interest rates on home-loans are able to explain just 12 percent of the inflation in house prices. The remainder is due to speculation which is another reason for the bubble in house prices. Policies, in the form of interest rate hikes, reduced loans to purchase second and third homes, and limits on the purchase of additional homes have been introduced to slow the growth of the bubble. Respondents to the survey doubt the effectiveness of these policies in slowing the growth of price bubble, both in the short and the long term.
Is there a housing bubble in China?
Emerging Markets Review, 2019
There is a growing concern in recent years over the potential formation of bubbles in the Chinese real estate market. This paper aims to conduct a series of bubble diagnostic analysis over nine representative Chinese cities from two aspects. First, we investigate whether the prices had been significantly deviating from economic fundamentals by applying a standard Engle-Granger cointegration test. Second, we apply the Log-Periodic-Power-Law-Singularity (LPPLS) model to detect whether there is any evidence of unsustainable, self-reinforcing speculative behaviours amongst the price series. We propose that, given the heterogeneity that exists amongst cities with different types of bubble signatures, it is vital to conduct bubble diagnostic tests and implement relevant policies toward specific bubble characteristics, rather than enforcing one-that-fits-for-all type policy that does not take into account such heterogeneity.
Detecting and Dating Chinese Housing Bubbles: Empirical Evidence form the First Tier Cities
2014
for the very valuable feedbacks. Without his helps and guidance, I would not have been able to articulate my initial research ideas and put all my empirical results together in one paper. Also, I would like to thank Professor Coulumbe for lecturing me on the course of Macroeconomic Theory IV, which prepared me with a solid Macroeconomic knowledge and Econometric techniques to take on this project. Lastly, I would like to thank Mr David Stambrook, Ph.D. Candidate in Economics at the department, for his extremely valuable helps in editing as well as suggesting additional comments on the paper.
A Tale of Two Countries: Comparing the US and Chinese Housing Markets
The Journal of Real Estate Finance and Economics, 2018
The recent surge in property values in China has been similar to the surge in the U.S before the crash in 2007. This raises concerns about whether China is destined to have a crash as well. We estimate similar models of property values for the two countries, in order to compare price dynamics side by side. We find little in common between them. In the U.S. the adjustment process appears prone to Bbubbles^in the sense of strong momentum, but Chinese prices have been generally mean reverting, without momentum. This suggests that the recent price rise in China has had more to do with scarcity than with irrational exuberance.
Determinants and Sustainability of House Prices: The Case of Shanghai, China
Sustainability, 2015
Recent housing policies include measures for home purchase control and shanty town redevelopment. This study proposes sustainable pricing, in that the long-run equilibrium price is determined by the fundamentals of house prices. We argue that changes in CPI might have led to rapidly growing house prices and rather high price levels. We investigate the long-run or short-run impacts of new commodity housing completions, transacted square meters of commodity housing, and CPI for house prices in Shanghai. We adopt monthly data for the period of 2005-2010. We test for unit roots using both the ADF and PP techniques and structural breaks using both the Zivot-Andrews (Model B) and Perron (Model C) methods. Considering Cheung-Lai and Reinsel-Ahn finite-sample corrections, the results suggest a long-run equilibrium. Housing completions negatively impact house prices in the short run. A positive volume-price relationship is suggested. Housing sales affect house prices in the short run but not vice versa. Hence, the empirical evidence supports the search model. In addition, CPI is strongly exogenous with respect to the long-run relationship and thus is a long-term determinant of house prices. CPI also positively and drastically influences house prices in the short run. Therefore, a reduction in inflation rate could stabilize house prices, increasing the chances of sustainable prices in the future.
China’s Housing Booms: A Challenge to Bubble Theory
Research Papers in Economics, 2020
Over the past two decades, Chinese cities have experienced real estate booms displaying clear signs of "bubble" elements, including, inter allia, prohibitive residential prices, an accumulation of debt, and severe overbuilding. In 2014, many media commentators claimed that Chinese property markets were about to bust. Yet house prices have started to rise again in major cities, and no significant slowdown has been recorded to date. This chapter addresses the challenges posed by China's residential market dynamics to the bubble theory. Adopting a political economy perspective that breaks with the approaches of real estate economics, it highlights the self-fulfilling logic of the housing booms, resulting from pervasive practices of land value capture by local governments. The paper stresses the inadequacy of the bubble framework to distinguish speculative and "fundamental" explanatory factors of price increases, and provides an alternative reading based on Andre...
Bubbles Are Departures from Equilibrium Housing Markets: Evidence from Singapore and Taiwan
The housing prices in many Asian cities have grown rapidly since mid-2000s, leading to many reports of bubbles. However, such reports remain controversial as there is no widely accepted definition for a housing bubble. Previous studies have focused on indices, or assumed that home prices are lognomally distributed. Recently, Ohnishi et al. showed that the tail-end of the distribution of (Japan/Tokyo) becomes fatter during years where bubbles are suspected, but stop short of using this feature as a rigorous definition of a housing bubble. In this study, we look at housing transactions for Singapore (1995 to 2014) and Taiwan (2012 to 2014), and found strong evidence that the equilibrium home price distribution is a decaying exponential crossing over to a power law, after accounting for different housing types. We found positive deviations from the equilibrium distributions in Singapore condo-miniums and Zhu Zhai Da Lou in the Greater Taipei Area. These positive deviations are dragon kings, which thus provide us with an unambiguous and quantitative definition of housing bubbles. Also, the spatial-temporal dynamics show that bubble in Singapore is driven by price pulses in two investment districts. This finding provides a valuable insight for policymakers on implementation and evaluation of cooling measures.
Detecting bubbles in Hong Kong residential property market
Journal of Asian Economics, 2013
This study uses a newly developed bubble detection method (Phillips, Shi and Yu, 2011) to identify real estate bubbles in the Hong Kong residential property market. Our empirical results reveal several positive bubbles in the Hong Kong residential property market, including one in 1995, a stronger one in 1997, another one in 2004, and a more recent one in 2008. In addition, the method identifies two negative bubbles in the data, one in 2000 and the other one in 2001. These empirical results continue to be valid for the mass segment and the luxury segment. However, the method finds a bubble in early 2011 in the overall market as well as in the mass segment but not in the luxury segment. This result suggests that the bubble in early 2011 in the Hong Kong real estate market came more strongly from the mass segment under the demand pressure from end-users of small-to-medium sized apartments. † We thank Dong He, Cho-hoi Hui, Peter Phillips and the participants of the 2012 SKBI Annual Conference for their comments on the paper.
This study examines some key aspect of ten Asian housing markets over the period from 1980 to 2014. Equilibrium or fundamental house price indices are determined by the interaction of supply and demand through panel ordinary least square (OLS) and individual country OLS techniques. On the demand side, the drivers of house price indices include interest rate, demography, and credit availability. On the supply side, domestic liquidity as well as global liquidity have large effects on housing supply. In the short run, rational expectations about changes in fundamentals including income growth, population and stock index explain much of the housing fluctuation. During the housing boom periods, investors seem to overreact to observable changes in fundamentals. Although fundamental factors leave a large share of changes in real estate prices unexplained, actual house price indices are driven largely by demand-side and supply-side fundamentals while the bubble components are driven by the irrational expectations of sustained price increases. The findings suggest changes in, especially for housing overvaluation in the Asian economies. The model of rational expectation explains around 60 percent of changes in house prices. During the last twenty years, some economies such as Hong Kong or Singapore have experienced more volatile than cycling components.