The Study Of Price Bubbles And Early Warning Mechanism In Housing Market

Since housing is the most important part of real estate, the healthy work of housing market has direct relation to the stable development of China's econom. In recent years, the sale price of commercial housing appeared a rising trend, the housing price income ratio in several cities are even higher than the level of some developed countries. These phenomena attract widely attention from the government, the common people, the business circles and the academy. Thus,"whether the real estate industry is boom or not"and"whether a price bubble exists in the market"become two focus questions. At present, about the two questions, different people have different answers, which could be reduced to three kinds of viewpoints: bubble view, no bubble view and bubble risk view. Because of different definitions of bubble, different observed indexes and different testing methods, each side sticks to his own view and proposes very different suggestions.Since the government strengthen the macroeconomic control to resident housing market, the rationality and efficiency of control policy, which based on identification of the existing, typing and causing of bubbles, has become more important. Thus, studying the forming mechanism and existing test of bubbles is meaningful not only to the theory but also to the reality. Using the method of theoretical model and empirical analysis, this paper studies the forming mechanism of housing price bubbles, proposes empirical tests of the bubbles'existence and type, and investigates early warning technique of the bubbles systematically. The results could be helpful for the government to control the housing market.The body of the paper consists of four parts. In the first part, the forming mechanism of price bubbles in housing market is analyzed. In the second part, the empirical tests of bubbles'existence and type are carried out taking Shanghai housing market for example. The results show that housing bubbles exist in the short run but not in the long run, and the bubbles type coincides with regime switching models. In the third part, we establish an early warning supervision system of Shanghai housing market using binary choice model and ordered choice model. In the last part, some advices are proposed based on the research results. In order to analyze the forming mechanism of price bubbles in housing market, the paper divides homebuyers into two parts, investors and owner-occupiers, using the method of Case (2003) for reference. The results of theoretical model suggest information in two aspects. In one hand, when all the homebuyers in the housing market are investors, the appearance of bubbles is mainly related to the risk transferring behavior of investors to banks. In this case, the precondition of bubbles'appearance is the default possibility of investors. In the other hand, when all the homebuyers are owner-occupiers, the expectation of housing price plays an important role in bubbles'formation. In that case, the precondition of bubbles'formation is that the owner-occupiers expect the bubbles would grow up over time.In order to answer whether price bubble exists in the housing market, the paper empirically tests the existence of bubbles both in the long and short run, taking Shanghai housing market for example. Since"doubtable cointegration equation", in which mortgage rate influences housing price positively, appeared in the process of unit root and cointegration test, we non-linearize the effect of mortgage rate on housing price by introducing a new variable named housing mortgage credit level. By doing this, we improve the traditional unit root and cointegration test and conclude that in Shanghai housing market there is not price bubble in the long run. Subsequently, an error correction model is used to analyze the short run dynamics of housing price. The result shows that once the actual price deviates from its equilibrium point, the return process would run in a low speed, meanwhile, the dynamics of housing price presents a positive autocorrelation character. These phenomena propose that in the short run there is price bubble in Shanghai market.In order to detect the dynamics and forming mechanism of short-run bubbles in Shanghai, the paper empirically test the bubble type using the method suggested by van Norden (1996). The results show that short-run bubbles do exist and they rise and fall over time. Moreover, the probabilities of the bubbles'rising (or falling) are related to the scale of the bubbles, so we call them"regime switching bubbles". Instead of irrational fads and follower behavior, this type of bubbles is caused by investors'rational expectation of future return of housing investments. Thus they are rational bubbles.For the sake of preventing national economy from housing bubbles'bad influences, the paper constructs an early warning and supervision system for Shanghai housing market. Considering the disadvantages of weather index method and comprehensive imitation method, which could not satisfy the actual need of development and supervision of housing market, we establish an early warning and supervision system using binary choice model and ordered choice model, taking"housing price income ratio"as core index. The system overcomes the disadvantages of traditional methods, and both of the identification correct ratios in the two models exceed 70%.In the end, some proposals are given in order to guarantee the healthy development of China's housing market.