Are Common Factors the Main Drivers of House Market Boom in China? A Short- and Long-Term Perspective

Abstract

This paper investigates the house price dynamics across 30 regions in China and explores whether common factors or regional factors are the main drivers of house market movements from a short- and long-term perspective. From a short-term perspective, we employ a dynamic factor model and reveal the common factors to be the main drivers, especially in high-growth regions. This is consistent with the conclusion of long-run house price convergence test. Our results also underscore the need for targeted monetary policies, particularly in high-growth regions, to maintain the stability of house market in China.