Fundamental or speculative factors in the housing markets of emerging economies? Some lessons from China

Using quarterly data, 1999:Q2-2009:Q3, we empirically examine the key macro determinants of housing prices for China's residential market. Employing Granger causality and Vector Auto-Regression (VAR) models, we find that there exists strong bivariate causality between house price increases and its determinants. The variance decomposition suggests that speculative factors reflected by past increases in real house price contribute a relatively larger proportion to house price rises relative to fundamental factors.