Theoretical And Empirical Research On The Wealth Effect Of The Real Estate Market

Real estate as a risk asset has both attributes of investment goods and consumer goods. Since the late 1990s, the total elimination of welfare housing free of charge, our country’s real estate market as we know has an unprecedented development. Real estate investment enthusiasm has not cut back. And price was increasing. From a general point of view of economic theory, growth of wealth will produce the wealth effect, which is the accumulation of wealth and growth, will lead the expansion of consumer spending. That means that as the value of real estate increase and the family continues to accumulate wealth, consumer spending should also increase. However, different with the theory, with the ever-expanding family housing assets, while there was no significant increase in the proportion of consumer spending in GDP, but lower year by year. Therefore, the issue price of real estate wealth effect caused concern of many scholars, and for policy makers also becoming a problem that cannot be ignored. China’s real estate market prices deviate from residents pay levels, home ownership become a social problem. At the same time, consumer market is lack of energy with increasing precautionary savings. In this social situation, this paper attempts to research the wealth effect of the real estate market from two levels, which is theoretical and empirical levels, finding relationship between the consumption of resident and real estate asset prices.At theoretical level, from the absolute income hypothesis, the relative income hypothesis, the life cycle-permanent income hypothesis and the theory of consumption function based on co integration, we will understand the principles of real estate asset price fluctuations on the consumer which is generally believed there is two different effects of promotion and inhibition, and we will discusses the various transmission mechanism of real estate wealth. In the empirical level, combined with the role of the expected psychological price for promoting speculation demand in the real estate market, it deduces an adaptive expectations econometric model about impact on the residents’ consumption of the real estate market price. Empirical test based on time series of quarterly data of 2001-2014 shows that there is some real estate market wealth effect. But it decrypts small proportion of independent housing demand, and relatively more speculative demand. According to the percentage of deviation with the true price of 19%in the previous, people correct the current expectations of prices. Expected prices to rise further promote the speculative demand, while promoting the consumption, but not very significant. Finally,based on summary of the full text from theoretical research and empirical conclusions, this section will propose suggestion implicated for enhancing the wealth effect of the real estate market, standing on promotion of the consumer’s point of view, with new ideas for better administrating of the real estate market.