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Local Housing Market Sentiments and Returns: Evidence from China
Journal of Real Estate Finance and Economics ; 2022.
Article in English | Web of Science | ID: covidwho-2209460
ABSTRACT
This paper examines the impacts of local housing sentiments on the housing price dynamics of China. With a massive second-hand transaction dataset, we construct monthly local housing sentiment indices for 18 major cities in China from January 2016 to October 2020. We create three sentiment proxies representing the local housing market liquidity and speculative behaviors from the transaction dataset and then use partial least squares (PLS) to extract a recursive look-ahead-bias-free local housing sentiment index for each city considered. The local housing sentiments are shown to have robust predictive powers for future housing returns with a salient short-run underreaction and long-run overreaction pattern. Further analysis shows that local housing sentiment impacts are asymmetric, and housing returns in cities with relatively inelastic housing supply are more sensitive to local housing sentiments. We also document a significant feedback effect between housing returns and market sentiments, indicating the existence of a pricing-sentiment spiral which could potentially enhance the ongoing market fever of Chinese housing markets. The main estimation results are robust to alternative sentiment extraction methods and alternative sentiment proxies, and consistent for the sample period before COVID-19.
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Full text: Available Collection: Databases of international organizations Database: Web of Science Language: English Journal: Journal of Real Estate Finance and Economics Year: 2022 Document Type: Article

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Full text: Available Collection: Databases of international organizations Database: Web of Science Language: English Journal: Journal of Real Estate Finance and Economics Year: 2022 Document Type: Article