Internet Search Activity as Social Learning: Evidence from China's Housing Market Dynamics
Matthew E. Kahn*
UCLA and NBER
March 25th 2014
Over the last decade, China’s home prices have soared. Young people, especially young men, continue to want to buy homes and must choose whether and when and where to buy. Due to fundamental uncertainty about one’s labor income path, future real estate price growth and government policy, potential real estate buyers have an incentive to seek out Internet information about evolving market sentiment. Following a recent U.S literature, we build a 35 Chinese city real estate sentiment index that measures the degree of optimism in a local market at a point in time. All else equal, this index predicts several important real estate phenomena and its effects differ depending on local demand side and supply side conditions. Our findings suggest that this sentiment index proxies for a time varying housing demand shifter. We use a household expectations survey covering seven cities to further explore the underpinnings of the empirical relationships we document.