Bank Credit And Real Estate Price Fluctuations

Volatility of real estate prices has increasingly become a hidden threat to thehealthy operation of the national macroeconomic. Although the financial crisis in thehistory is different, credit expansion and real estate price bubble seems to be acommon mechanism behind them.Since the reform and opening up, China’s economy has gained rapid development,at the same time, the real estate industry has also been a large expansion in thenational economy, and it is becoming more and more important. Since China’shousing system reform in1998, the real estate industry has entered a new period ofdevelopment, increasingly towards the direction of the market-oriented development.Currently, real estate has become the foundation and a pillar industry of the nationaleconomy.At the same time, house prices are rising. With the arrival of theinternational financial crisis in2008, China’s real estate market is a short-termcooling.In order to response to the crisis, the government start the macro policy ofstimulating domestic demand to stimulate economic growth in the end of the year.The real estate industry has entered a new round of expansion cycle and house pricesrise rapidly. Real estate credit risk also accumulate.So, in our country,is it real estateprices inflated also along with excessive bank credit support? In China, is closecorrelation between the fluctuations in real estate prices and bank credit? This isrelated to macro-financial stability, and to study these problems, undoubtedly hastheoretical and practical significance.This article will use qualitative and quantitative methods to analyze therelationship between China’s price fluctuations and bank credit. First, this paperdiscusses the theory of fluctuations in real estate prices and bank credit interactionmechanisms,including the wealth effect, Tobin’s q effect and balance sheet effectstheory. Secondly, this paper bases on China’s real estate market, both from the demandand supply of the real estate market to build a model of real estate and bankingsector,then propose the assumption of this article, and use SVAR measurement modelto expand the empirical analysis, and finally concluded.The analysis results show that,bank credit over-involved in the real estate market is one of the important reasonscausing prices rose sharply.Whether in long-term or in short-term,bank credit scaleand real estate prices will promote each other, reinforce each other, andmacroeconomic aggregates have a positive effect on credit and real estate prices,while interest rates will tight housing price and credit scale. Therefore, in order to preventthe ups and downs of the real estate prices and cause systemic risk, credit instrumentscan be pegged to the real estate prices.