House Market in Chinese Cities: Dynamic Modeling, In-Sampling Fitting and Out-of-Sample Forecasting

This paper attempts to contribute in several ways. Theoretically, it proposes simple models of house price dynamics and construction dynamics, all based on forward-looking agents’ maximization problems, which may carry independent interests. Simplified version of the model implications are estimated with the data from four major cities in China. Both price and construction dynamics exhibit strong persistence in al cities. Significant heterogeneity across cities is found. Our models out-perform widely used alternatives in in-sample-fitting for all cities, although similar success only limited to highly developed cities in out-of-sample forecasting. Policy implications and future research directions are also discussed.