Housing Liquidity Measurement And Its Application In Forecasting Market Conditions

During recent years the instability of housing market in most Chinese cities has been strong, which is reflected not only in the rapid changes in housing prices but also in the much volatility in housing transactions, a macro indicator of housing liquidity. It is then necessary to introduce indices of liquidity, combined with price indicators, into the research on housing market in order to explain and forecast its performance more efficiently.The paper systematically summarizes and compares the existing indicators of housing liquidity. To remedy their defect of failure to avoid heterogeneity of trade samples, a new housing liquidity index that depends on the microscopic samples is introduced as well as studied in relationship with existing measurement indices of liquidity. Furthermore, a method is improved on basis of such index to forecast the changes in housing prices. In this method, the possibility that housing price will exceed a threshold under certain level of liquidity is calculated to realize specific function of alarm. Besides, the housing hedonic price index with liquidity correction is put forward in the last part of the paper, which is a comprehensive reflection of housing liquidity and price.The empirical results indicate that, 1) housing liquidity index with housing heterogeneity controlled is a more reliable measurement of housing liquidity; 2) housing liquidity index efficiently predicts the probability that the range of rise in housing price will surpass a threshold, as is confirmed by accuracy of 80 percents in additional forecast examination; 3) the liquidity corrected housing hedonic price, reflecting both housing price and liquidity, is more consistent with housing market performance and in better accordance with people's expectations on market.The result of this research provides policy-makers a new idea and method in supervision and forecast of housing market conditions, and at the same time contributes to the accumulation of empirical evidence for academic research on housing liquidity in China.