Heterogeneous Expectation, Investor Behavior and Fluctuations in Housing Prices: Tale of Two Cities between Shanghai and Guangzhou

Zhang Hao

Journal of Finance and Economics Vol. 42, Issue 08, pp. 51 - 61,120 (2016)  DOI:10.16538/j.cnki.jfe.2016.08.005

Abstract

In real estate market, there are a lot of investors, and their market behavior leads to fluctuations in housing prices to a big margin, thus resulting in market instability. Based on the introduction of investors' heterogeneous expectation assumptions, this paper builds up the equilibrium model of real estate market including real estate consumers, investors and suppliers. It analyzes the impact of heterogeneous behavior of fundamental-based and trend-based investors on fluctuations in housing prices and makes a comparative study by using the real data of Shanghai and Guangzhou as two first-tier cities. It comes to the results as follows:firstly, in real estate market, different expectation of future housing prices by these two categories of investors and investment behavior can result in changes in housing prices; secondly, Shanghai investor behavior overall leads to constantly rising trend in Shanghai housing prices all the time, and Guangzhou investor behavior results in the transformation from overall pushing trend-based changes in housing prices under original static condition to overall pulling housing prices back to the fundamental prices with changes in investment strategy; thirdly, investor proportion in real estate market significantly affects change trend of housing prices; when the proportion of fundamental-based investors rises, the deviation and change rate of housing prices reduce, and when the proportion of fundamental-based investors reaches the peak, housing prices are at an inflection point; fourthly, the strategy change speed among investors also gives rise to changes in the proportion of fundamental-based investors and thereby frequent fluctuations in housing prices, and quicker strategy change speed leads to more frequent fluctuations in housing prices.

Keywords

heterogeneous expectation; strategy evolution; real estate market; housing price