Research On Housing Price Fluctuations And Irrational Behavior From Perspective Of Hangzhou Real Estate Market

Since the State Council issued "Notice on the Further Deepening of the Urban Housing System to Speed up Housing Construction" in 1998, the real estate market in China has experienced very rapid development; housing prices had significant volatility and the topics about housing attracted concerns of many scholars. However, the traditional economics theory which is according to the "rational assumption" has not come to a generally accepted conclusion on the short-term price fluctuations in real estate market. The root causes may be the existence of information asymmetries and incomplete information in the market, and causes may also lie in the inequality of market players and the difference of the ability to deal with information. Therefore, some scholars believe that "irrational exuberance" exists in the real estate market.To address this issue, this paper takes the real estate market in Hangzhou for example, and tries to introduce a combination of behavioral economics and the classical theory of economics to study the non-rational causes of price fluctuations. This paper mainly includes the following parts:First of all, in this article we collected a large amount of data to illustrate supply and demand status and price fluctuations in the real estate market of Hangzhou through various channels. And we come to a conclusion that the real estate market shows the non-rational characteristics, such as: the price in the short term followed by a significant rise or decrease; investment fluctuations are also significant; the turnover in land market only has a significant positive correlation with the current housing prices, which did not reflect the developers' rational expects in investment and so on.Secondly, this paper demonstrates the supply and demand in the real estate market is non-rational using models and evidence, and further shows the housing market and land policy and financial support is also non-rational. For instance: the governments' impulse to bid up land prices and the real interest rate and exchange rate also pushed the housing prices.Third, this paper argues the mechanism of how irrationality leads to price fluctuations and put forward a more comprehensive analytical framework to explain that irrational individuals, groups and irrational inhibition mechanism could lead to wide fluctuations in real estate market through a feedback mechanism. Anchoring effect and over-confidence and other psychological reasons make individuals irrational, which may be further delivered by herding effect. The irrationality may be enhanced if the arbitrage mechanism and the wealth constraint inhibition fail.Finally, the paper suggests that consumers or investors as well as government should set up non-rational expectations to respond to large swings in housing prices.