Long-Term and Short-Term House Price Dynamics in China’s First Tier and Second Tier Main 13 Cities

Abstract

This article identifies the main drivers and assesses housing bubbles in China’s first-tier and second-tier main 13 cities’ aggregated house prices for 2007Q2 through 2018Q4. The empirical analysis is conducted using robust econometric multiple frameworks, undertaken using the forms of OLS and VECM techniques. The outcomes suggest that house prices attain a long-run equilibrium every 7.14 quarters, with a short-term correction by their own macroeconomic forces including share performance, interest rate, and GDP. Our findings suggest the three macroeconomic drivers identified are effective to stabilize the housing markets. Governments could reduce large fluctuations on house prices and balance the countries’ housing market, share market, and economic growth via setting appropriate monetary policies. In addition, real estate businesses and construction industries and households could set accurate finance plans and budgets to improve their resilience to economic shocks.