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A study of the Hong Kong property market: housing price expectations

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Author Info

  • Joe Tak-Yun Wong
  • Eddie Hui
  • William Seabrooke
  • John Raftery
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    Abstract

    The size and direction of correlation between housing price movements and expectations differ between housing actors and change over time in Hong Kong. A cross-sectional market outlook survey was conducted in November 2000 to measure housing price expectations and their formation. The study challenges the traditional adaptive expectations theory and finds that the pessimistic mindset of market actors in a deflationary period was due to a lack of economic confidence - the root cause for weak expectations. It also suggests that there exist differential price expectations between different actors. Homebuyers and investors tend to be unrealistically overconfident in the long-term performance of the real estate market. Evidently, the determination of house sale prices is predominantly forward-looking, based more upon macroeconomic fundamentals than the past price trend.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/01446190500127260
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Construction Management and Economics.

    Volume (Year): 23 (2005)
    Issue (Month): 7 ()
    Pages: 757-765

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    Handle: RePEc:taf:conmgt:v:23:y:2005:i:7:p:757-765

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    Web page: http://www.tandfonline.com/RCME20

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    Related research

    Keywords: Expectation formation; Hong Kong; housing price expectations;

    References

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    1. Krashinsky, Michael & Milne, William J., 1987. "Housing prices in Metropolitan Toronto : An empirical analysis," Regional Science and Urban Economics, Elsevier, vol. 17(2), pages 289-305.
    2. Kuo, Chiong-Long, 1996. "Serial Correlation and Seasonality in the Real Estate Market," The Journal of Real Estate Finance and Economics, Springer, vol. 12(2), pages 139-62, March.
    3. Welch, Ivo, 2000. "Views of Financial Economists on the Equity Premium and on Professional Controversies," The Journal of Business, University of Chicago Press, vol. 73(4), pages 501-37, October.
    4. Quigley, John M., 2002. "Real Estate Prices and Economic Cycles," Berkeley Program on Housing and Urban Policy, Working Paper Series qt58c6v2kx, Berkeley Program on Housing and Urban Policy.
    5. Harris, Jack C, 1989. "The Effect of Real Rates of Interest on Housing Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 2(1), pages 47-60, February.
    6. Brown, Jane P. & Song, Haiyan & McGillivray, Alan, 1997. "Forecasting UK house prices: A time varying coefficient approach," Economic Modelling, Elsevier, vol. 14(4), pages 529-548, October.
    7. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    8. Figlewski, Stephen & Wachtel, Paul, 1981. "The Formation of Inflationary Expectations," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 1-10, February.
    9. Pace, R. Kelley & Barry, Ronald & Gilley, Otis W. & Sirmans, C. F., 2000. "A method for spatial-temporal forecasting with an application to real estate prices," International Journal of Forecasting, Elsevier, vol. 16(2), pages 229-246.
    10. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
    11. Anthony Y. Gu, 2002. "The Predictability of House Prices," Journal of Real Estate Research, American Real Estate Society, vol. 24(3), pages 213-234.
    12. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    13. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," NBER Working Papers 3368, National Bureau of Economic Research, Inc.
    14. Clapp John M. & Giaccotto Carmelo, 1994. "The Influence of Economic Variables on Local House Price Dynamics," Journal of Urban Economics, Elsevier, vol. 36(2), pages 161-183, September.
    15. John M. Clapp & Carmelo Giaccotto, 2002. "Evaluating House Price Forecasts," Journal of Real Estate Research, American Real Estate Society, vol. 24(1), pages 1-26.
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    Cited by:
    1. Magnus, Jan R. & Wan, Alan T.K. & Zhang, Xinyu, 2011. "Weighted average least squares estimation with nonspherical disturbances and an application to the Hong Kong housing market," Computational Statistics & Data Analysis, Elsevier, vol. 55(3), pages 1331-1341, March.
    2. Frank Caliendo & Kevin X.D. Huang, 2007. "Overconfidence and Consumption over the Life Cycle," Vanderbilt University Department of Economics Working Papers 0712, Vanderbilt University Department of Economics.

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