Fluctuation Analysis Of Housing Price

The basic principle of real estate economics tells us in the mature real estate market,sale price and rental price should have a strong relationship.Rental price reflects the ownership cost for the owners or real estate investors.The present value of all the future rental income is a very important benchmark to judge whether housing price is too high or too low.Domestic studies of housing price fluctuation mainly focus on the correlation between the fundamental factors and housing price.In contrast,studies on the relationship between sale price and rental price from the perspective of asset pricing or opportunity cost are fewer.In this paper,by analyzing the substitutional relationship between housing-buying and housing-renting,we try to get the equilibrium relationship between sale price and rental price.We also try to test whether the rental-to-price theories can be applied to Chinese housing market and to find the proper method to judge the reasonability of housing price.Housing sale price is affected by many factors,including people's expectation about future price and fundamental economic factors such as disposable income, population scale,interest rate,tax policies and so on.In this paper,we try to analyze the fluctuation rules of the two markets under both equilibrium and un-equilibrium conditions just from the perspective of the two markets' substitutional relationship regardless of the effects of other fundamental factors.The advantages of these methods include:housing renting period is usually short;renting decision is a short time decision and thus more flexible;information in the rental market is more symmetric;rental price is less affected by expectation of the future housing price.So rental market is more like a completely competitive market.Fluctuation of rental price is usually caused by the real housing service demand and supply.The prediction of rental price is more accurate than that of housing price.So studying housing price through its relationship with rental price is simpler and more accurate.The theoretical foundation of this paper is the user cost model.Under the assumption that housing rental market is approximately completely competitive,we made both theoretical and positive analysis.We conclude that when the sale price increases faster than the rental rate,it does not necessarily mean houses are overpriced, which is opposite to the prevailing opinions.According to our theory,when the sale price is low relative to the rental price,higher increasing rate of housing sale price than the rental price is necessary in order to force the markets back to equilibrium.In this case,the highly increasing sale price is normal.So comparison between the increasing rate of sale price and rental price is not a proper measurement for the reasonability of housing price.We also conclude that the equilibrium rental-to-price ratio is not a constant.It is decided by interest rate,expected capital gains,tax,and consumer preference etc.So judging the reasonability of rental-to-price ratio should not be simply based on the international benchmark but rather on the specific conditions of different places and different periods.In the paper,we provide both theoretical and positive support for the above arguments.In the positive study of the quantitative relationship between housing price and rental price,we mainly use co-integration test and OLS estimation method.Data in this paper is panel.