The Research About Real Estate Price Fluctuation And Financial Stability

For the understanding of the serious hazard of the inflation, the central bank has putprice stability as the main monetary policy objective for a long time. Since the1980s, theinflation of the major countries and regions in the world has been effectively controlled,this provided a necessary precondition for macroeconomic stability and sustaineddevelopment in a certain extent. In sharp contrast with this, along with economicglobalization and financial liberalization, stocks, a spate of large fluctuations of theexpansion and contraction in real estate and other asset markets, caused serious financialcrisis, such as1980s Japan's bubble economy,1990s Asian financial crisis and the2007U.S. subprime mortgage crisis. The real estate is a capital-intensive industry, and itsdevelopment can not do without the support of financial institutions, credit funds. Realestate price high may induce probability of excessive volatility to create bubble, and withbanking industry itself inherently vulnerability, the combination of them will make thefinancial stability vulnerable to the fluctuations of the real estate price. There are sometheoretical and practical values about studying on the fluctuations in real estate price,especially fall of the price on the financial stability during China's current real estatemarket regulation.From the perspective of theory, due to real estate with special attributes of bothphysical assets and virtual assets, the determination of the price not only depends on theirhousing utility, also depends on the real estate investment income. Real estate is a highlyspecialized industry and the heterogeneity of the product determines the typicalasymmetric information during transaction process. The game of asymmetric informationamong real estate companies, buyers and commercial banks decides inherent upwardmomentum of real estate price and credit fund excessive putting in the real estate industry.If there is a relaxed financial environment or government mismanagement in the real estateindustry, there will be a bubble in the real estate market. The collapse of the bubble will effect a serious threat on financial stability through the bank credit risk exposure, liquidityshock, and exacerbate the asymmetric information or other ways.China's real estate market and real estate finance developed rapidly after the housingsystem reform from1998, but due to the slow development of affordable housing and theemphasis on promoting real estate development through market-oriented, the real estateprice has experienced upward pressure for a long time, and in some cities there areobvious the real estate bubble. MBS (Mortgage-Backed Securities) and REITs (Real EstateInvestment Trusts) are being still in experiment or discovery stage. The risk of the realestate finance market over-reliance on commercial bank loan money supply willconcentrate in the banking system, and hide in the Financial Stability. Empirical analysisshows that the causal relationship has existed in the China's real estate market price andbanks real estate credit in recent years. Credit facilities to participate in house price soaringup contain a greater financial risk. In the context of real estate price fall, we should beconcerned about the security of real estate firms' solvency and the safe of real estatemortgage loan, by adopting the safest way of regulation gradual with prior positiveregulation of the monetary policy, macro-prudential supervision, improving real estatefinancial support to build long-term mechanism of the real estate development and othermeasures to stabilize the real estate price fluctuations and maintain financial stability.1. The paper reviews the development process of the China's real estate finance,especially the intrinsic links between the real estate price and Credit fund of financialinstitutions. From the bubble economy in Japan and the U.S. subprime mortgage crisis, wehas found that the impact of the asset price bubble and collapse on financial stability wasthat degree of credit financing and leveraged institutions directly involved in the process ofthe bubble formation. The China's real estate financing leverage ratio was low, the risk offluctuations in real estate price would assemble in commercial banks which was adominant factor at the real estate finance market.2. The paper focuses on the real estate price fall, which influences on the security ofcredit fund and financial stability. According to the theory, there are three possibleoperating modes about asset price bubble: the first is that Real estate price falls sharply fastand Bubble bursts; the second is that the price falls slowly in a long time and the bubbletends to disappear; the third mode is that the bubble tolerates and persists because themarket conditions are still present. This article shows that there is the real estate bubble in some cities of China when house price rises rapidly, but there is no economic, socialinfrastructure of foam persistently. We think that if the market conditions of real estatebubble do not exist, the most important thing would be to regulate real estate price timelyand moderately for the goal of "Price reasonable return" and take monetary policy,macro-prudential policy, financial innovation or other measures to safeguard financialstability on the basis of continuous improvement of people's income in two to three years.