Investor Confidence as a Determinant of China's Urban Housing Market Dynamics

China's urban housing market dynamics suggest that evolving investor confidence may be a relevant demand shifter. Such investors are continually updating their beliefs about the state of the macroeconomy and the policy uncertainty related to national and local housing policies. We build a 35 Chinese city real estate confidence index that varies over time and across cities. This index predicts subsequent house price appreciation and new housing sales. We document evidence of heterogeneous effects of investor confidence depending on a city's demographics and the city's elasticity of housing supply. Our results based on a new household-level expectations survey bolster the case that investor expectations are an important determinant of real estate price dynamics.