In this paper, we revisit the relationship between housing prices and consumption in China by using a continuous wavelet analysis. This method provides an insight into the dynamic nexus in both time and frequency domains. In general, Empirical results show that there is a positive relationship between the two series in China, although it varies across time and frequencies. First, we find that disposable income is the core factor which affects both consumption and housing prices in China. Second, housing prices have a weak wealth effect on consumption in most time. High housing ownership and proportion of housing asset in the total household asset lead to a wealth effect of housing prices on consumption. Third, in the long term, there is a significant wealth effect of housing prices on consumption, but it weakens after 2008, which implies that excessively high housing prices in recent years have partially constrained residents’ consumption. These findings have important implications for seeking housing market regulation and expanding domestic consumption decisions.
This paper examines the dynamic short-run and long-run co-movement between the real estate and stock markets in China by employing a continuous wavelet method. We use gross domestic product and M2 (broad money supply) as control variables to eliminate the common factors of the two markets and to identify the real nexus between them. The empirical results show that the co-movement between real estate and stock prices is weak in the short run, except during the financial crisis period. Since the stock market is highly volatile, while real estate prices are relatively stable, the two markets are less correlated in the short run. The results also show that real estate prices affect stock prices in the long run, which supports the existence of a credit-price effect in China. Real estate prices remained very high in most time periods. Enterprises and individuals can obtain funds from bank loans to invest in the stock market, thus raising stock prices. These findings indicate that the two markets are generally segmented in the short run but are integrated in the long run. The stabilization of the real estate market is critical for stability in the stock market, but not vice versa. Additionally, investments in the two markets may not provide a high level of risk dispersion in the long run in China.
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