Housing market sentiment and homeownership

Abstract

The homeownership in China has witnessed a sharp growth during the last two decades even though the increasing housing price has brought challenges to housing affordability. This study provides a new explanation for this phenomenon. Based on the China Households Finance Surveys (CHFS), we try to explore how housing market sentiment influences households’ actual housing-purchasing decision and potential house-purchasing intention. Our results show that housing price and housing market sentiment play quite different roles in households’ housing-related decisions. Higher housing price lowers the probability to make actual house purchase and discourage households’ home-purchase intention. Higher sentiment is positively related to the decision of purchasing a house, especially the second house. Households’ house-purchasing intention can be stimulated by higher sentiment. The higher the sentiment, the more investment will be made in housing market. From an academic perspective, this study contributes to the existing literature by considering the importance of market collective attitudes, i.e. “market sentiment”. From a practical perspective, our findings are expected to facilitate a better-informed decision-making process for homebuyers, property developers and policy makers.