Demystifying the Chinese Housing Boom

Hanming Fang, Quanlin Gu, Wei Xiong, Li-An Zhou

NBER Working Paper No. 21112
Issued in April 2015
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics

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.

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Document Object Identifier (DOI): 10.3386/w21112

Published: Demystifying the Chinese Housing Boom, Hanming Fang, Quanlin Gu, Wei Xiong, Li‐An Zhou. in NBER Macroeconomics Annual 2015, Volume 30, Eichenbaum and Parker. 2016