Investor Confidence as a Determinant of China’s Urban Housing Market Dynamics

Macro economists have documented the association between consumer confidence dynamics and durables purchases. A similar dynamic exists in China’s urban housing market. At any point in time Chinese consumer confidence hinges on beliefs about the state of the macro economy and the resolution of policy uncertainty related to the national and local housing policies. We build a 35 Chinese city real estate confidence index. All else equal, this index predicts subsequent house price appreciation and new housing construction. Given that housing plays a key role in China’s marriage market, we document that in cities with more skewed sex ratios that this index has a stronger association with market price dynamics. In cities featuring a more inelastic housing supply, we document a stronger association between price dynamics and the confidence index. We supplement this city panel research with results from our household level expectations survey. We thank participants at the April 2014 NBER China Working Group Meeting, and Xiong Wei for valuable comments. Yuan Zhang provided excellent research assistance.