The Fluctuation of Housing Price and Consumer Confidence: Chinese Evidence

Using the cointegration and Granger test, this paper studies the relationship between the fluctuation of housing price and consumer confidence in China over the years 2000-2007. The empirical results show that there exists a long run cointegration between the fluctuation of housing price and consumer confidence in China. Moreover, housing price generally Granger-cause consumer confidence, but not vice versa. The housing price confidence relationship is driven by expectations about economy-wide conditions and the personal finances. This suggests that the confidence channel is based on the leading indicator property of housing prices, and it is a part of the traditional wealth effect.