Title: A Tale of Two Countries: Comparing Booms, Busts and Bubbles in the US and Chinese Housing Markets

Speaker: Professor Rose Lai, University of Macau

Time: April 7th, 2017 13:30–14:45

Venue: Conference Room 106B, Zhonghui Building (College of Economics, JNU)

Abstract:

This paper compares the evolution of property values in the U.S. and China across cities and time using simple, side-by-side models to compare long run levels and short run dynamics. Although the time period allowed for our analysis is short, we view the results as essentially descriptive, but applied to important time periods. We use (Pooled) Mean Group estimation to analyze house prices in cities in China from 2009-2016 and the U.S. from 1999-2016, including sub-periods. We define the “fundamentals” of housing prices with the Gordon dividend discount model, and use lagged rents, prices, real, nominal interest rates, as short term explanatory factors in both countries. We also consider differences over sub-periods and by city types. We find some similarities between the countries in terms of long run fundamentals, but major differences in adjustment. In particular, we find that the U.S. has had adjustment that was relatively slow and prone to “bubbles” in the sense of strong momentum. On the other hand, China has had relatively quick adjustment back to long run fundamentals and nothing like  momentum. In short, our results suggest that the U.S. house prices have tended to chase past house prices; whereas that in China have tended to chase rents. This does not mean that China properties are less risky. We find important differences between major cities and smaller ones, especially in China.