An Analysis of the Relationship Between Housing Prices and Business Survey Index

Abstract

This paper empirically analyzed the short-and long-term dynamic equilibrium relationship between housing price and business survey index, macroeconomic variables using cointegration analysis and ECM model as considering that psychological factors of economic subjects that cannot be explained by economic variables can affect housing price. The results of are as follow. First, the long-term equilibrium relationship between housing price and expectations showed a one-on-one relationship, with housing price rising 0.96% when economic subject optimistic expectations for the economy rose 1%. Second, in the short-term adjustment model between housing price and business survey index, housing price rose 0.021% when expectations rose 1%, while expectations rose 1.154% when housing price rose 1%. This means that a rise in housing price increases expectations more than a rise in expectations raises housing price. Third, the error correction term between housing price and business survey index was statistically significant, When housing price exceed the long-term equilibrium level, the return to equilibrium is found to be resolved by about 6% within a year. Therefore, there is a need to stably manage expectations in order to stabilize the housing market.