Integration and risk transmission across supply, demand, and prices in China's housing market

This study explores integration and risk transmission in the Chinese (residential) housing market using variance decompositions from the vector autoregression model. The study covers the period from January 2000 to September 2022. The results indicate that short-term total connectedness changes over time and is significantly larger than long-term connectedness, suggesting that total connectedness is sensitive to time-specific developments and short-term events. Supply-side shocks typically lead demand-side shocks in the long term. However, because of changes in the economy, market conditions, government policies, and investor sentiment, the direction of short-term risk transmission between supply and demand sides varies. Moreover, long-term shocks usually flow from housing prices to the supply side and from the demand side to housing prices. In the short term, prices alternately affect the supply and demand sides of the housing market at different points in time. This study also supports the predictive ability of connectedness measures for macroeconomic conditions, suggesting meaningful implications for investors, real estate developers, and policymakers.