Housing,consumption and monetary policy: how different are the first-, second- and third-tier cities in China?

This article presents an empirical analysis of the relationship between house prices and the real economy in China’s first-, second- and third-tier cities. A Structural Vector Autoregression model is applied to study the impacts of monetary policy shocks and housing demand shocks on various housing markets across China. We also investigate the role of house prices in the transmission mechanism of monetary policy. The results reveal that in first-tier cities, raising interest rates has a stronger negative effect on house prices. Also, as house prices decrease in first-tier cities, private consumption declines sharply. There is a stronger role of housing markets in the transmission of monetary policy shocks in these cities. Our findings indicate that interest rate adjustment could effectively curb spikes in housing prices in the first-tier cities, but the impact of such adjustments on household consumption must also be considered.     

CREDIT,HOUSING COLLATERAL,AND CONSUMPTION: EVIDENCE FROM JAPAN,THE U.K., AND THE U.S.

The consumption behavior of U.K., U.S., and Japanese households is examined and compared using a modern Ando‐Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral, and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for U.K. and U.S., but not Japanese, households has undergone large shifts since 1980. The average consumption‐to‐income ratio rose in the U.K. and U.S. as mortgage down‐payment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans. The estimated housing collateral effect is similar in the U.S. and U.K. In Japan, land prices (which proxy house prices) continue to negatively impact consumer spending. There are negative real interest rate effects on consumption in the U.K. and U.S. and positive effects in Japan. Overall, this implies important differences in the transmission of monetary and credit shocks in Japan versus the U.S., U.K., and other credit‐liberalized economies.     

HOUSING MARKETS AND THE GLOBAL FINANCIAL CRISIS: THE COMPLEX DYNAMICS OF A CREDIT SHOCK

We analyze the multiple channels of influence that global financial crisis‐induced credit restrictions had on New Zealand's subnational housing markets. The dynamics caused by the credit shock are compared to those caused by a migration shock, a more common form of housing shock in New Zealand. We focus on the impacts on two outcome variables, house prices and housing supply, within a structural time series model of regional housing markets. Both shocks cause substantial and prolonged cyclical adjustments in each variable. Similar cyclical dynamics could complicate the conduct of macroprudential policies designed to affect bank credit allocation. (JEL E32, E44, R21)     

Testing for rational bubbles in the US housing market

The presence of a bubble in the US housing market prior to the 2007 subprime mortgage financial crisis is investigated. This is done by looking into the relationship between house prices and rental prices, known as the price–rent ratio, which is an important measure of a potential deviation between house prices and its fundamental value. Additionally, the interest rate is taken into account since it is an important factor in determining demand for housing mortgages and thereby influencing house prices, and explosive behavior of house prices is considered. These relationships are investigated through a theoretical and econometrical framework. The empirical evidence suggests that there was a bubble in the housing market prior to the financial crisis, even when controlling for the decreasing interest rate and the fundamental information given by the rental price in the period. Explosiveness was the main source of the price increase, such that a bubble was present in the housing market after correcting for other fundamental factors. The econometric procedures used in the analysis may therefore be relevant for monitoring the housing market.     

The 2007 financial crisis and the UK residential housing market: Did the relationship between interest rates and house prices change?

This paper investigates the impact of the 2007 financial crisis on the relationship between real mortgage interest rates and real house prices. It applies a dynamic conditional correlation based methodology that uses fractionally differenced data along with controls for structural breaks and non-interest-rate related factors that influence house prices. The key finding made is that the financial crisis had a long-term structural impact on the monetary transmission relationship. For example, we find that the mean conditional correlation between house prices in England and Wales and the three-year fixed mortgage rate rose by 6.6 percentage points. Similarly, the mean correlation between prices and the standard variable mortgage rate increased 6.4 percentage points to 54%. These findings suggest to us that interest-rate-based monetary policy still has an important role to play in the housing market.     

Interest Rates,Local Housing Markets and House Price Over‐reactions

Understanding the effects of interest rates on city‐specific house price to household income ratios is important for managing local housing markets. In particular, there is concern that keeping interest rates at sufficiently low levels can distort the relationship between local house prices and fundamentals. We use house price to income ratios across capital cities in Australia to investigate this issue and show that there is a national interest rate ‘transition’ point below which housing dynamics can become unstable. This result lends support to the presence of a duration‐dependent threshold effect (hitherto mainly explored in theoretical models).     

House prices,credit and the effect of monetary policy in Norway: evidence from structural VAR models

This paper investigates the responses of house prices and household credit to monetary policy shocks in Norway, using Bayesian structural VAR models. The analysis indicates that the effect of a monetary policy shock on house prices is large, while the effect on household credit is muted. This is consistent with a relatively small refinancing rate (refinancing rate refers to the share of outstanding mortgages that are refinanced each period due to changes in, for example, house prices or interest rate) of the mortgage stock each quarter. Using monetary policy to guard against financial instability by mitigating property-price movements may prove effective, but trying to mitigate household credit may prove costly in terms of GDP and inflation variation.     

A national or local phenomenon? A comparison of the US and the Chinese housing markets

This article investigates the common movements of house prices across cities as well as the macroeconomic underpinnings of the comovements in the US and China. Our empirical results indicate more differences than similarities between the US and the Chinese housing markets. The results from a Bayesian dynamic latent factor model indicate that the fluctuations of house prices across cities in the US are more a national phenomenon, while the dynamics of house prices across cities in China are mainly driven by the city-specific component. We further use VAR models to compare the roles of the underlying determinants in these two housing markets. The results show that the roles of monetary policy shocks and aggregate fluctuations in driving the common movements of house prices across cities differ substantially between the US and China at both short and long horizons.     

HOUSING AND HOUSING FINANCE IN AN ERA OF INFLATION AND DISINFLATION: INTRODUCTION

So far, the 1980s have been the decade of disinflation in the housing market. The United States has experienced four remarkable years during which house prices have declined in real terms, and, at least in some markets, in nominal terms as well. At the same time, mortgage interest rates have risen to unprecedented levels, and the housing finance system has experienced extraordinary stresses, which are contributing to a remarkably rapid process of fundamental structural change. This comes immediately after a 15-year period of variable, but persistent and accelerating inflation, culminating in a speculative housing boom from 1977 to 1979.     

Expectations and the housing market: A model of house price dynamics

We examine the characteristics of housing markets under adaptive and heterogeneous expectations. Model agents have finite horizons, and their borrowings are constrained by the collateral value of housing stock. Our model shows that expectation-driven housing price dynamics constantly change the direction of movement. The steady-state process of housing prices follows an endogenous oscillation process, and the magnitude of the cycles can be amplified by external shocks. Our quantitative results imply that (i) short-term positive and long-term negative serial correlations in housing price changes are inherent, (ii) house prices and expected house price movements are positively correlated, and (iii) fluctuations in housing prices are not fully explained by fundamentals.     

HOUSE PRICES AND CONSUMPTION INEQUALITY

I characterize how house price shocks affect consumption inequality using a life cycle model of housing and nonhousing consumption with incomplete markets. I derive analytical expressions for the dynamics of inequalities and use these to analyze large house prices swings seen in the United Kingdom. I show that movements in consumption inequality were large, that they correspond with the theoretical predictions qualitatively, and that the model explains a large fraction of the movements quantitatively. I demonstrate the accuracy of this analysis using an extended model's full nonlinear solution. Finally, accounting for house price shocks alters estimates of labor–income risks using cross‐sectional data.     

Bayesian analysis of Hong Kong's housing price dynamics

This paper uses a Bayesian vector‐autoregressive model with sign restrictions to estimate the underlying drivers of Hong Kong's housing price dynamics in the short run. While existing studies are useful in analysing housing valuation, little attention has been paid to the short‐run dynamics. In contrast, the present paper identifies short‐run drivers of housing prices using structural identification with theoretical underpinnings. We find that among the shocks that we have identified, bank lending shock and housing supply shock were the main factors affecting Hong Kong's housing prices. Low mortgage rates were another key factor that led to the significant increase in housing prices after the global financial crisis.     

House price dynamics: Evidence from Beijing

To study the house price dynamics in China, this paper extends the traditional life-cycle model by incorporating land supply, regime shifts and government regulation factors. The models are estimated with an error correction framework using quarterly data from 2000 to 2007 in Beijing. The conclusions are as follows. (1) There exits a stable co-integration relationship between house price and fundamentals; land supply and financial regimes are also important determinants of long-run equilibrium house prices. (2) Short-run dynamics depend on changes of fundamentals and the adjustment process of housing market. Land supply has a significant impact on house price fluctuations while demand factors such as user costs, income and residential mortgage loan have greater influences. The adjustment speed of real house prices to the long-run equilibrium has been reduced significantly since 2005 which means exogenous shocks can cause prolonged deviation of real house prices from the equilibrium level.     

Global capital markets,housing prices,and partisan fiscal policies

In recent years, global imbalances have channeled the excess savings of surplus countries toward the real estate markets of deficit countries. By consequence, the deficit countries that attracted lots of foreign capital experienced large run‐ups in house prices, whereas most surplus countries that exported capital exhibited flat or slow house price growth. We first use new house price data and a novel instrumental variable design to show the causal relationship between housing prices and capital inflows, particularly through debt bonanzas. We then argue that international capital flows affect the fiscal policy preferences of both voters and political parties by way of their impact on housing prices. Where capital inflows are large and housing prices are rising, we expect voters to respond by demanding both lower taxes and less publicly‐provided social insurance because rising house prices allow homeowners to self‐insure against income loss. In contrast, declining house prices produce greater demands for social insurance, particularly among those most exposed to housing market risk. We present evidence from two cross‐national surveys that supports these claims, as well as a “before and after” analysis of the housing crash in Eastern Europe. We also show that the connection between house prices and social policy also manifests itself in government spending outcomes, mediated by partisan control.     

中国利率政策与房地产价格的互动关系研究

本文通过建立结构向量自回归模型对中国房地产价格与利率政策之间的互动关系进行了探讨,发现中国的利率政策并不能对房地产价格形成有效的调节,造成了利率政策房地产价格传导渠道的失效;相反,房地产价格冲击对利率政策却具有显著的正向影响,说明中国历史上的利率政策制定的确参考了房地产价格因素,并对其作出了一定的反应。本文还利用模拟分析对样本期间内我国利率政策的实施效果进行了分析评价。研究结论对中国中央银行利率政策的有效执行及房地产市场调控具有重要政策启示。     

HOUSING OVER TIME AND OVER THE LIFE CYCLE: A STRUCTURAL ESTIMATION

We construct a model of optimal life‐cycle housing and nonhousing consumption and estimate the elasticity between the two goods to be 0.487. The estimate is robust to different assumptions of housing adjustment cost, but sensitive to the choice of sample period and the degree of aggregation of data moments. We then conduct experiments in which house prices and household income fluctuate. Compared with the benchmark, the impact of the shocks on homeownership rates is reduced, but the impact on nonhousing consumption is magnified when housing service and nonhousing consumption are highly substitutable or when the house selling cost is sizable.     

Heterogeneous Mortgage Markets: Implications for Business Cycles and Welfare in the EMU

This paper evaluates business cycle effects of asymmetric cross‐country mortgage market developments in a monetary union. By employing a two‐country New Keynesian DSGE model with collateral constraints tied to housing values, we show that a change in institutional characteristics of mortgage markets, such as the loan‐to‐value (LTV) ratio, is an important driver of asymmetric developments in housing markets and economic activity. Our analysis suggests that the home country where credit standards are lax booms, while the rest of European Monetary Union faces a negative output gap. Overall welfare is lower if LTV ratios are higher.     

Explaining House Prices in Australia: 1970–2003*

This paper aims to explain changes in real house prices in Australia from 1970 to 2003. We develop and estimate a long-run equilibrium model that shows the real long-run economic determinants of house prices and a short-run asymmetric error correction model to represent house price changes in the short run. We find that, in the long run, real house prices are determined significantly and positively by real disposable income and the consumer price index. They are also determined significantly and negatively by the unemployment rate, real mortgage rates, equity prices and the housing stock. Employing our short-run asymmetric error correction model, we find that there are significant lags in adjustment to equilibrium. When real house prices are rising at more than 2 per cent per annum, the housing market adjusts to equilibrium in approximately four quarters. When real house prices are static or falling, the adjustment process takes six quarters.     

次贷危机与我国住房信贷风险防范

美国不完善的住房保障体系、宽松的房贷政策以及创新的房贷产品,使市场积累了巨大风险,而利率上升和房市降温引爆了次贷危机.我国住房信贷市场存在类似于次贷危机的风险形成机制.公共住房供需矛盾突出,住房信贷市场准入标准宽松,提供按揭贷款的银行缺乏合理的避险手段,长期内利率波动和住房产权流动性不足,使我国住房信贷市场风险不断积累.防范我国住房信贷风险必须未雨绸缪.     

Relationships among regional housing markets: Evidence on adjustments of housing burden

High regional house prices relative to income may result in residents moving to other regions with lower housing burden; this generates relationships among regional housing markets. From this perspective, this study employed Markov-switching models to examine housing affordability in 10 regional housing markets in the UK. The results show that levels of housing burden among regions are related, thereby proving that a high cost of housing burden in one region may result in residents buying houses in other regions. Moreover, this study found that house prices in most regions tend to converge with income levels but are asymmetric within the period of convergence. Specifically, because the period of high housing loans lasts longer, and vice versa, housing demand increases as soon as house prices drop. Thus, periods of “inexpensive” house prices do not last long. This paper explains why living costs in different regions are related, and proposes that housing demands may have asymmetric reactions when house prices are too high or too low.