Hong Kong Housing and the Asian Financial Crisis

What is the relationship between financial crisis and house price? How is the house price affected by the international financial crisis? There are two kinds of crisis, one is the government creating money and the other one is not creating money. In the first situation, because of the money printing, the income goes up, price raises and people who have extra money will buy house as a hedge. The house price would not decrease in this situation. In the second situation, under the impact of the financial crisis, the bad loans grew rapidly, many Banks failed, a large number of enterprises shut down, unemployment raised. The government adhered to no extra money, so the rate of inflation is not high, in this case house prices will fall.

According to history and law of the global financial crisis, relatively speaking, the real estate market is passive and hysteretic changed. In 1929-1930, for example, the international economic crisis started from a stock market crash. During 1997 to 1998, Asian financial crisis triggered by the Thai currency collapse. In 2010, the European debt crisis, all these three crisis finally caused house prices decreased. The only big crisis started from the property market is the international financial crisis in 2008.

What am I really increased in is what had the previous papers researched in this topic. In first paper, the author uses the aggregated data from OECD countries to estimate a variety of VAR models to assess the association between global liquidity and classes of asset prices.  Authors conclude that there are subsequent spill-over effects from house prices to the overall price level. The author makes improvement in empirical evidence concerning the relationship between money growth and asset prices from an international context.

In the second paper, The paper shows linkage between real housing prices and macroeconomic developments is however bidirectional for the G-7 area, with investment showing in general a stronger reaction than consumption and output to housing price shocks. Author provide a joint assessment of the linkages between general macroeconomic conditions and the housing market, as well as to investigate the feedback effects of housing price shocks on the real economy.

In third paper, the main objectives of this empirical study are to detect the possibility of multiple structural breaks in the US house price data during 1995-2010, exhibit very sharp upturns and downturns; endogenously determine the breakpoints and conduct house price forecasting exercises to see how models with structural breaks fare with competing time series models. The paper is the first attempting in endogenously modeling structural breaks in house price series. They also use a univariate time series modeling approach in this paper.