An Analysis Of The Real Estate Price Fluctuations Based On Expectations Theory

Since China abolished the welfare housing distribution system and implemented the real estate market in 1998, China’s real estate market has been grown rapidly. The promoting effect of real estate on Chinese economy is increasing year by year. And real estate industry gradually became an important pillar industry of the national economy. With the development of the real estate industry, the rapid rise in house prices also caused concern in society. Many scholars have done a lot of researches on the factors that affecting house prices. However, most scholars do research from the macro-economic fundamentals and government policies. They didn’t take into account that the market participants are the basis to determine price fluctuations, and ignored the micro foundation. Expectation of market participants is an important factor affecting the real estate market. Taking this factor into research not only enhances the ability to explain and predict the real price fluctuations, but also will link the micro subject and macroeconomic together and provide Micro foundation.This paper uses the train of thought to analysis the relationship between the expectation of the market participants and the price fluctuations: firstly descriptive analysis, then theoretical analysis, finally empirical analysis. To be specific, firstly, based on the real estate’s data, this paper describes the character of real estate from three aspects: the supply and demand of real estate market, price fluctuations characteristics and participants’ expectation characteristics. Then, this paper analyses the relationship between the expectation and the prices fluctuations, which mainly involves three aspects: the transmission mechanism, the expectation’s impact on the price, and the price’s impact on the expectation. Finally, in order to further validate the relationship between the price fluctuations and expectation, this paper introduces DSSW model from Behavioral Finance to establish a model of the determinants of housing price, and make an empirical analysis by using pane data which consist of 35 cities.The results showed that: In china, expectations toward real estate market are mixtures of rational and irrational ones. Both the rational expectations and irrational expectations have an impact on the price fluctuation. But the results are different: rational expectations have a negative effect that can reduce the volatility risk of price while expectations from noise trader push up housing price. Therefore, the government should do their best to improve housing security system, set up a sound information disclosure system, guide market participants’ expectation correctly, thereby increasing the degree of rational expectations and maintaining the stability of real estate prices.