Price Appreciation Research Articles

China's GDP at risk: The role of housing prices

This paper studies the impact of house prices on the distribution of GDP growth in China (the 5th, median, and 95th percentiles). We show that house price appre-ciation positively affects future GDP growth, with a more significant impact on the tail outcomes - GDP at risk. Moreover, we find that housing bust is associated with GDP growth vulnerability; a sharp decline in house prices generates severe economic downturns. Our finding is supported by the investment channel, a housing boom stim-ulates investment, which boosts GDP growth. However, the subsequent housing bust suppresses investment, leading to increased downside risks to GDP growth.

Unlocking housing wealth through mortgage debt: do patterns and motivations vary by age?

Successive waves of house price appreciation have prompted homeowners to tap into housing wealth, increasing mortgage debt to meet spending needs. This paper addresses three questions about equity borrowing behaviour via panel-data modelling. First, how do homeowners’ asset and debt portfolios affect equity borrowing behaviour? Second, is equity borrowing influenced by financial behaviours relating to saving, planning and risk-taking? Third, do equity borrowing drivers vary by age? Our findings confirm that equity borrowing is generally influenced by asset and debt portfolios, with notable age-related differences. Younger homeowners exhibit greater sensitivity to changes in primary home value and debt, and risk willingness. Income, labour force status and ownership of other property are crucial for those aged 55–64, while homeowners aged 65+ are generally insensitive to asset, debt or income changes. We discuss policy implications, emphasizing the prospects of longer working lives among pre-retirees, the need for safeguards for elderly equity-borrowers, and the welfare consequences of later-life debt burdens or homeownership loss.

Can stock trading suspension calm down investors during market crises?

We examine the trading behavior of investors facing a large number of firm-initiated stock trading suspension events during the Chinese stock market crisis in July 2015. Using account-level trading data from the Shanghai Stock Exchange, we find that investors with a higher fraction of holding value in suspension sell less (or purchase more) of non-suspended stocks. Consequently, non-suspended stocks whose shareholders have a high average account-level suspension fraction experience a short-term relative price appreciation. This evidence indicates that trading suspension can calm down investors and therefore help to stabilize the volatile market during crises.

Results of the Far East Mortgage Program for Consumers, Developers, and the Government

The volume of mortgage loans issued in eleven regions of the Far Eastern Federal District at the end of 2023 increased 2.5 times by the start of the Far Eastern Mortgage program in 2020. The most interesting result of the program is an increase in demand for primary real estate and a simultaneous decrease in the affordability of this housing. Since the start of the program, prices have increased by 116% vs. 26% while maintaining historical growth rates. By the end of 2021, the price of an apartment, including interest under the Far East Program, has become higher than that of an apartment while maintaining the historical rate of price appreciation under the family mortgage rate. The program has effectively made housing less affordable. The main conclusion is that for program participants (young families under 35), the most effective benefit of stimulating home buying is lower interest payments, not down payments. The main beneficiaries of rising prices and the scale of lending are developers. Considering the increased price of construction materials, the developers’ margin in the Far Eastern Federal District in 2023 increased to 58%. On the one hand, the government has achieved its goal of boosting the housing market in the Far East and has found an effective tool to encourage young families to buy real estate. This is evidenced by the extension of the program until 2030. On the other hand, several economic shocks led to a significant increase in the key interest rate and the accompanying growth of the program implementation costs.

Housing Market Appreciation and the White-Black Wealth Gap

Abstract Real house prices in the United States have risen by 55 percent over the last four decades, driving substantial wealth benefits to homeowners. However, research has not explored how this rise in house prices has affected White-Black wealth gaps, or the mechanisms that may underlie this relationship. Using geocoded longitudinal household-level wealth data from the Panel Study of Income Dynamics and tract-level house price index data, I estimate that housing market appreciation between 1984 and 2021 explains 70 percent of the increase in the median White-Black wealth gap over this period. I find that most of this effect is due to White-Black gaps in homeownership, with White-Black gaps in house values playing a smaller role. In contrast to recent findings about racialized housing markets, I do not find that gaps in neighborhood house price appreciation between White and Black homeowners contributed to White-Black wealth gaps in the 2000s and 2010s. These results highlight the importance of cumulative advantage processes in driving wealth inequalities and demonstrate how the legacies of institutional racism contribute to contemporary racial wealth gaps.

Moderating Effect of Investor Demand on the Relationship between Institutional Investors Participation and Flipping Activity

This paper examines the moderating effect of investor demand on the relationship between institutional investors’ participation and flipping activity of Malaysian IPOs. Measured with proxy, flipping activity seems to be the least risky way to optimize returns from IPOs. If done excessively, flipping activity could produce a damaging effect on the aftermarket performance of the new shares. Issuers and underwriters could restrict availability of shares to flip by strategically allocating a larger proportion of IPOs to institutional investors. This strategy could work because this group of investors is perceived to be “loyal” as they tend to keep their shares for a long-term investment. However, the impact of restricting supply of IPOs in the immediate aftermarket could aggravate the situation if the IPOs are highly demanded. The shift of the demand curve to the right when supply curve has shifted to the left induces a new equilibrium at a higher price level. Further price appreciation will make investors be more tempted to flip to optimize their returns, pushing flipping activity to its maximum level. Using 247 Malaysian IPOs covering the period from January 2000 to December 2012, this study finds that investor demand does moderate the negative relationship between institutional investors’ participation and flipping activity.

Determinants of housing prices: Serbian Cities’ perspective

This study investigates the spatial and temporal dynamics of housing prices in Serbia, addressing the critical need to understand the drivers of real estate prices and their implications for economic and social welfare. Employing a panel data analysis approach on a unique dataset covering 24 distinct urban areas in Serbia from 2011 to 2021, we examine the relevance of diverse economic, demographic, and infrastructural indicators, providing novel insights within a developing country context. Our findings reveal that the housing market stock-flow model effectively predicts housing price appreciation trends, explaining over 60 percent of variation in property prices. Notably, disparities in labour income, captured by average wages and registered employment rates, emerge as significant determinants of real estate prices, underlining socio-economic disparities within Serbian cities. Housing prices exhibit a positive response to the population/housing stock ratio, suggesting higher prices in cities experiencing faster population growth relative to housing supply. Intensified construction is associated with elevated housing prices. Additionally, we find positive association between the inflation variable and housing prices, underlining real estate’s potential as an inflation hedge. Public service provision and infrastructural amenities also emerge as contributors to higher housing prices in urban areas, emphasizing the importance of comprehensive urban planning strategies. Our study contributes to the literature by providing specific quantitative evidence, advancing the understanding of urban housing market dynamics in developing countries. By offering nuanced insights into determinants of housing prices, our research informs policymakers and urban planners seeking to foster equitable and sustainable urban development strategies.

How do Treasury dealers manage their positions?

Using 31 years of data (1990–2020) on U.S. Treasury dealer positions, we find that Treasury issuance is the main driver of dealers’ weekly inventory changes. Such inventory fluctuations are only partially offset in adjacent weeks and not significantly hedged with futures. Dealers are compensated for inventory risk by means of subsequent price appreciation of their holdings. Amid increased balance sheet costs attributable to post-crisis regulatory changes, dealers significantly reduce their position taking and layoff inventory faster. Moreover, the increased participation of non-dealers (investment funds) in the primary market contributes to diminishing compensation for inventory risk taken on at auctions.

Beyond the collateral channel: Real estate prices and manufacturing firm investment in China

Recent studies show that real estate price appreciation raises firms’ debt capacity and therefore investment. However, appreciation of real estate prices may also push up production costs and thus discourage investment incentives. Using a large panel data set of Chinese manufacturing firms, we document that local real estate price appreciation had significant and robust negative effects on firm investment. The size of the negative effect is economically large, with a one standard deviation change in real estate prices explaining 17% of the variation in firm investment. Further exploration reveals that such negative effects of real estate prices on investment are stronger for firms in labor intensive sectors.

Estimating the importance of monetary policy shocks for variation in the U.S. homeownership rate

Being a homeowner is one of the tenets of the American dream. In general, relative to renting, people see homeownership as a path to wealth through the usual appreciation of the house prices and the forced savings through mortgage payments but also a path to financial stability through more stable and predictable housing costs (Young et al., 2023).

Interconnected Dynamics: Mutual Relationship of Macroeconomic Variables and BSE 200 Index Prices in the Indian Stock Market

This research delves into the intricate relationship between the Bombay Stock Exchange (BSE) 200 index and selected macroeconomic factors in the context of the Indian economy. Employing a systematic approach, the study utilizes regression analysis to examine the influence of macroeconomic variables on BSE 200 index prices. The research adheres to fundamental assumptions of regression modelling, employing diagnostic tests to ensure the reliability of the findings. The independent variables in the research include foreign exchange rates (Pound Sterling, Japanese Yen, Deutsche Mark/Euro, US Dollar), gold price, crude oil price, foreign exchange reserves, and inflation rate. The study covers the period from April 2018 to March 2023. The research findings indicate that the inflation rate, foreign exchange reserves, and the Japanese Yen exchange rate significantly impact the BSE 200 index price. Higher inflation is associated with a decrease in the index, emphasizing the negative influence of rising prices. Conversely, increasing foreign exchange reserves correlate with index price appreciation, emphasizing the role of reserves in fostering confidence and stability.

주택매매시장에서의 거품에 관한 실증연구

This study examines the monthly real house price index movements over the period 1986-2023 using the GSADF method to determine whether bubbles existed in the Korean housing market, where they occurred, when they occurred, and how long they lasted by housing type (total, apartment, detached house, and townhouse). We summarise the main findings from our empirical analysis as follows. First, there were multiple bubbles in housing prices across the nationwide, Seoul, and all provincial metropolitan areas. However, there are many differences in how bubbles occurred across regions and types of housing. Second, the post-bubble period lasted much longer in the detached house market than in the apartment and row house markets. Third, many housing market bubbles occurred during periods of abundant liquidity. Fourth, while most bubbles are positive, appearing during periods of rapid house price appreciation, negative bubbles appeared in some areas (Busan, Gwangju, and Ulsan) during the 1998 Asian financial crisis. Fifth, the detached house markets in Busan and Ulsan are found to be bubbling at the end of the sample (December 2023). These results suggest that the GSADF test can not only detect historical bubble periods, but can also detect bubbles in real time, providing early warning of bubbles.

Herding and reverse herding in US housing markets: new evidence from a metropolitan-level analysis

ABSTRACT This study is the first to examine herding and reverse herding in US metropolitan housing markets based on Zillow ZIP-level house price indices. Reverse herding is found to be more prevalent than herding, which differs markedly from equity markets and outcomes derived from less granular house price indices. The results suggest that the interaction between price appreciation and overconfidence may drive reverse herding. Also, herding and reverse herding show strong dependency on market conditions. Wide spatial and temporal variation in herding and reverse herding suggests the importance of local characteristics as determinants of the rationality of market responses.

On Commercial Construction Activity's Long and Variable Lags

We use microdata on the phases of commercial construction projects to document three facts regarding time-to-plan lags: (1) plan times are long—about 1.5 years on average—and highly variable, (2) roughly one-third of projects are abandoned in planning, (3) property price appreciation reduces the likelihood of abandonment. We construct a model with endogenous planning starts and abandonment that matches these facts. Endogenous abandonment makes short-term building supply more elastic, as price shocks immediately affect the exercise of construction options rather than just planning starts. The model has the testable implicationthat supply is more elastic when there are more “shovel ready” projects available to advance to construction. We use local projections to validate that this prediction holds in the cross-section for U.S. cities.

Transforming homeownership: an innovative financing model with a future value approach

Purpose This study aims to address the critical need for innovative financing solutions in the global housing sector, focusing specifically on Malaysia’s distinct housing finance system encompassing both conventional and Islamic loans. The primary objective is to develop a transformative housing finance model that addresses affordability challenges and reshapes the Malaysian housing landscape. Design/methodology/approach The study presents an alternate housing finance model for Malaysia, integrating lower monthly payments and reduced household debt. Key variables include house price appreciation rates, interest rates, initial guarantee fees and loan-to-value ratios. Inspired by the Help to Buy (HTB) scheme, the model aligns with proven global initiatives for enhanced affordability, balancing payment amounts, loan interest rates and acceptable price thresholds. Findings The study’s findings promise to address affordability disparities and reshape Malaysia’s housing finance landscape. The emphasis is on introducing a structured repayment plan that offers a sustainable path to homeownership, particularly for low-income families. Incorporating the future value adaptation concept, inspired by reverse mortgages and Islamic finance, enhances adaptability, ensuring long-term sustainability despite economic shifts. Practical implications The proposed model promotes widespread access to homeownership, offering practical solutions for policymakers to improve affordability, prompting adaptable risk management strategies for financial institutions and empowering potential homebuyers with increased flexibility. Originality/value The study introduces a transformative housing finance model for Malaysia, merging elements from reverse mortgages, Islamic finance and the HTB scheme, offering potential applicability to similar systems globally.

Public expenditure multipliers and informality

This paper investigates the role of informality in affecting the magnitude of the public expenditure multiplier in a panel of 142 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the multiplier. This result holds irrespective of the level of economic development and institutional quality and is robust to additional country characteristics such as trade and financial openness and exchange rate regime. In a two-sector New-Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, thereby shifting demand towards the informal sector. This reallocation effect increases with the level of informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks, and thus reduces the multiplier.

Has Housing Filtering Stalled? Heterogeneous Outcomes in the American Housing Survey, 1985–2021

Filtering of housing units—the process through which housing units over time serve occupants with lower or higher incomes—is a primary source of low-cost housing supply in the United States. However, the extent of filtering can vary widely in response to local housing market conditions, and this variation carries implications for the affordable housing strategies used in different areas. This paper uses the American Housing Survey (AHS) panels for 1985–2013 and 2015–2021 to construct repeat income measures of filtering. The analyses then describe the extent of variation in filtering outcomes across time periods, price points, and metropolitan areas. The results show significant variation across all three domains. Temporal analyses document significant changes in the estimated filtering outcomes across multiple time periods. In particular, the estimates for 2015–2021 suggest that downward filtering of housing units stalled or reversed as housing markets tightened in recent years. The direction and extent of filtering is also shown to vary significantly across metropolitan areas with higher and lower home price appreciation. These findings highlight the importance of heterogeneity in filtering outcomes to the conclusions drawn for policy. They also provide insight into the potential limitations of filtering as a source of affordable housing supply.

ANALYZING THE UNDERLYING RELATIONSHIP BETWEEN MONETARY POLICY AND RESIDENTIAL PROPERTY PRICES IN CHINA

Policymakers and the public express concern regarding the volatility of housing prices due to its potential to increase consumer costs and negatively impact housing affordability. Based on empirical study, it has been seen that the expansion of the real estate sector has a significant impact on the investment in fixed assets by firms. This influence is mostly attributed to the alteration of the transmission of monetary policy. Real estate investment is considered a feasible option because of the significant and rapid appreciation in property prices. The primary objective of this study is to examine the influence of monetary policy on the housing market in China. To conduct the current study, macroeconomic data from a total of 44 time periods, ranging from the fourth quarter of 2012 to the fourth quarter of 2022, was collected. The findings of our study indicate that in the context of China, an expansion in the money supply has a greater propensity to positively influence the borrowing activities of real estate suppliers and clients, as opposed to the supply of properties themselves. The housing market can be influenced by governmental actions such as adjustments to the money supply and interest rates. While scholars have extensively examined the subject matter, the housing market in China remains relatively under-researched in terms of its susceptibility to government macroeconomic policies. Moreover, the current study offers a comprehensive overview of the prevailing challenges encountered by the residential property market in China, emphasizing the significance of macroeconomic policies within this particular context.

Can housing booms elevate financing costs of financial institutions?

We show that house price appreciation elevates financial institutions' financing costs because it can make households invest more in houses and invest less in or require higher returns on other assets. For identification, we employ the unique feature of wealth management products (WMPs, the largest component of China's shadow-banking sector) that the issuing markets are local whereas the markets of some products' underlying assets are national. Stocks, bonds, and deposits do not possess this feature. We find that house price growth raises WMPs' expected returns offered by banks. Household-level analyses further confirm that house price growth reduces households' WMP-investment demands.

Identifying the Benefits from Homeownership: A Swedish Experiment

Homeownership is widely stimulated by policy, yet its economic effects are poorly understood. We exploit quasi-random variation in homeownership generated by privatization decisions of municipally owned buildings and use granular data on demographics, income, housing, financial wealth, and debt that allow us to construct high-quality measures of spending. Homeownership causes wealth accumulation via house price appreciation, increases consumption, and improves consumption smoothing across time and states of the world. It increases mobility for young households, who move up the property ladder, and amplifies wealth accumulation for older households, who take more risk in their financial portfolio. (JEL D15, E21, G51, R21, R23, R31, R38)