A closer look at Chinese housing market: Measuring intra-city submarket connectedness in Shanghai and Guangzhou

In this paper, we study intra-city connections of housing submarkets, using data from two systemically important cities in China, Shanghai and Guangzhou. Chinese cities that underwent significant spatial and population growth in recent years provide an ideal testing ground for theories of urban spatial growth and the filtering models of housing market. By employing variance decompositions from vector autoregression models, we characterize three types of market connectedness. We find that price shocks mostly originate from the central areas and transmit to the suburban areas in both cities. Additionally, shocks usually run from new sale to resale markets, supporting the basic premise of filtering models. In both cities, trading volume shocks generally lead price shocks both within and across areas.