Working Paper: NBER ID: w21112
Authors: Hanming Fang; Quanlin Gu; Wei Xiong; Lian Zhou
Abstract: We construct housing price indices for 120 major cities in China in 2003-2013 based on sequential sales of new homes within the same housing developments. By using these indices and detailed information on mortgage borrowers across these cities, we find enormous housing price appreciation during the decade, which was accompanied by equally impressive growth in household income, except in a few first-tier cities. While bottom-income mortgage borrowers endured severe financial burdens by using price-to-income ratios over eight to buy homes, their participation in the housing market remained steady and their mortgage loans were protected by down payments commonly in excess of 35 percent. As such, the housing market is unlikely to trigger an imminent financial crisis in China, even though it may crash with a sudden stop in the Chinese economy and act as an amplifier of the initial shock.
Keywords: No keywords provided
JEL Codes: R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing price appreciation (R31) | household income growth (D19) |
| high down payment ratios (G32) | reduced likelihood of financial crisis (F65) |
| expectations of future income growth (D84) | willingness to accept high price-to-income ratios (R21) |
| household income growth (D19) | housing price appreciation (R31) |
| price-to-income ratios (P22) | financial burdens for low-income mortgage borrowers (G51) |