Does money supply drive housing prices in China?

Su, Chi‐Wei; Wang, Xiao-Qing; Tao, Ran; Chang, Hsu‐Ling

doi:10.1016/j.iref.2018.12.013

Cited by 40 publications

(24 citation statements)

References 42 publications

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“…Previous studies have reported that interest rates affect housing prices (Fischer et al, 2019;Hanck & Prüser, 2020;Valadkhani et al, 2019) and result in housing bubbles (Jordà et al, 2015;Moons & Hellinckx, 2019). Other studies have identified that money supply affects housing prices (Su et al, 2019;Yin et al, 2020) and bubbles (Tsai, 2015b;Huang & Shen, 2017). This study presents a new perspective to explain that interest rates affect the structure of housing price formation and whether prices are corrected toward the equilibrium.…”

Section: Home Price Behaviormentioning

confidence: 75%

The Special Effect of Interest Rate Cuts on Housing Prices

Lin

Tsai

2021

Journal of Business Economics and Management

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This study uses theoretical models and empirical research to explain that interest rates affect the structure of housing price formation and correction rather than affect the price alone. In particular, when interest rates are substantially reduced, the correction of housing prices toward fundamentals is absent; in other words, a housing bubble is likely to occur. This study first illustrates a model for explaining home price behavior. Data from the Case-Shiller U.S. National Home Price Index between January 1975 and August 2020 are adopted to observe the behavior of home prices. The empirical results show that the correction and bubble behavior of U.S. home prices have exhibited significant structural changes. Variation in money supply fails to explain the structural changes, however, interest rate variation can significantly affect the structural changes. According to the results, when interest rates rise or fall slightly, the correction of home prices toward the equilibrium value is significant. However, when interest rates fall substantially, the bubble behavior of home prices is significant. For governments that adopt low interest rates to revitalize the economy, the results of this study provide special reference values. Governments should provide additional intervention in housing markets when an extremely low interest rate exists.

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Section: Home Price Behaviormentioning

confidence: 75%

The Special Effect of Interest Rate Cuts on Housing Prices

Lin

Tsai

2021

Journal of Business Economics and Management

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“…Meanwhile, I also Granger causes M3HK, with the probability for null hypothesis at 0 as well. The bidirectional link between money supply and housing prices was in conformity with Su, et al (2019).…”

Section: Causal Relationship Between Interest Rate M3 and Housing Pmentioning

confidence: 81%

Internal and External Determinants of Housing Price Booms in Hong Kong, China

2019

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Hong Kong, China's housing market witnessed dramatic appreciations recently, with the price index for private domestic housing units being 3 times higher than 10 years ago. This trend is supported by both internal and external factors, as illustrated in this paper. By providing a theoretical model and empirical analysis on the key variables influencing housing prices, we find that changes in housing price index reinforce price trends in the long term. Hong Kong, China's dollar quantitative easing, and the gross domestic product of the People's Republic of China (PRC) are positively related to housing prices and negatively to lending. The inability to increase supplies in response to rising demand since 2003 has also much to do with the skyrocketing prices. Moreover, mortgage-to-total loans value is shrinking due to the unaffordability of housing units at current prices. This trend has to be tackled in time, otherwise the PRC may incur severe consequences similar to Japan's experience in the 1990s.

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“…Monetary policies, including policies related to money supply, the interest rate and inflation rate, are proven to be decisive factors in determining housing prices. Su, Wang, Tao, and Chang (2019), who examined the causality between housing prices and money supply in PRC from January 1998 to December 2016, has found the existence of a time-varying, "bidirectional causal link" between housing prices and money supply in PRC. Tsai & Peng (2011) showed a strong correlation between money supply and bubble indicators in Taiwan.…”

Section: B Policy Determinantsmentioning

confidence: 99%

“…Tsai & Peng (2011) showed a strong correlation between money supply and bubble indicators in Taiwan. Besides, Su et al (2019) showed that the bubble and bust cycle of housing prices can both positively and negatively affect money supply in the PRC in different sub-periods. Meanwhile, the money supply has a positive impact on housing prices as well.…”

Section: B Policy Determinantsmentioning

confidence: 99%

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Internal and External Determinants of Housing Price Boom in Hong Kong

Taghizadeh–Hesary

Yoshino

Mortha

et al. 2020

BEMP

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Hong Kong’s housing market witnessed a dramatic housing price appreciation in recent years, with the price index for private domestic housing units being three times higher than ten years ago. This trend is supported by both internal and external factors, as illustrated in this paper. By developing a theoretical model and an empirical analysis on the key variables influencing housing prices using monthly data from 1999 to 2018, we find that the main drivers of housing price appreciation are from the demand side and include income level, money supply and inflation. The main contribution of this study is the quantification of the role of Mainland China’s macroeconomic factors in housing price booms in Hong Kong. Our study shows that capital inflow from and inflation and recessions in Mainland China contribute to increasing housing prices in Hong Kong because the city’s real estate is seen as a way to preserve asset value. These findings call for the need for control of capital inflow between the two economies as well as for stricter regulations against empty houses in Hong Kong.

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Does money supply drive housing prices in China?

Cited by 40 publications

References 42 publications

The Special Effect of Interest Rate Cuts on Housing Prices

The Special Effect of Interest Rate Cuts on Housing Prices

Internal and External Determinants of Housing Price Booms in Hong Kong, China

Internal and External Determinants of Housing Price Boom in Hong Kong

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