A Measurement Bubble Of Real Estate In Wuhan City Based On State-space Model

The real estate industry of Wuhan city has experienced an explosive prosperity in the past years. The commercial house volume reached a record number of 251895 units in 2015, exceeding Shanghai became the highest city in China. The average market transaction price rapidly rose more than 15% within one year and reached 9266.57 Yuan per square meter, and some irrational market behavior like “Property Sell Out in One Day” or unit price soared 8500 Yuan over one night appeared. Real estate as a pillar industry of Wuhan, has a high proportion of investment, and plays a big role in stimulating economic growth, scientific and system research is needed to determine the presence and extent of bubble in the current market, so that the operation situation and trends of Wuhan real estate market can be understanding correctly.This paper first analyzed the reason why the common methods of estimating real estate bubble can't measure the fundamental value of real estate accurately nor describe the time path of bubble by reviewing the existing literature. Then it illustrated the principles and procedures of State-space model including unobservable variables like fundamental value into empirical analysis. The empirical model was set up by actual demand and supply equation set that determine house price, and chose the actual economic data including new commercial house volume, supply unit, transaction price, income, investment, interest rate, money supply and CPI as proxy variables, then estimated the time series of fundamental value, compared it with market price then got the price drift rate also known as bubble rate. The research result shows that there is bubble in Wuhan real estate market and it reaches 15.75% now. Based on that, the causes and suggestions of bubble are given from the aspects of market demand, supply, regulation and supervision.