Household Savings and Housing Prices in China

Using Phillips etal. (2012, Testing for Multiple Bubbles', Yale University) bubble test and the ratio of monthly housing price to rent in China, we cannot find that there were bubbles in the housing market for all provinces including urban and rural sectors during January 2000 to August 2011, but we found that there were housing bubbles for the 36 major cities during December 2004 to July 2011. By the panel provincial data during 1995-2010 in China, we found that the bubbly housing price, especially in the urban sector, significantly raises the household saving rate in cities as well as nationwide after controlling for the life cycle and the other related factors. Based on the micro household data for six major cities in China in 2005, we also find that the increase in housing price and housing loans has significantly positive impacts on household saving, even after controlling for other possible factors. The empirical results here are consistent with the predictions of the speculative saving hypothesis.