Differing expectations on home prices by HK households likened to US housing bubble experience

A small group can make an impact.

While the majority of Hong Kong households view current home prices as expensive, a small, growing number expects prices to rise, and this dichotomy in house price expectations has been likened to the behavior of US households over the course of that country's recent housing bubble.

According to a research report on Hong Kong property by CIMB, the divergent picture of house price expectations among Hong Kong households calls to mind the work of Piazzesi and Schneider, which was published in the American Economic Review 2009.

The study used data from the Michigan Survey of Consumers and observed changes in households' price expectations over the course of the US housing bubble.

Here's more from CIMB:

In the early boom years of 2002-03, they found that a large and increasing number of households believed that it was a good time to buy a house, with favourable credit conditions being cited as the most important reason.

However, in the second phase of 2004-05, as enthusiasm for housing was already declining and house prices were increasingly seen as too expensive, the number of households that expected prices to continue to rise actually increased.

Their analysis implies that if the first part of the US housing boom was created by cheap available credit, the last phase was dominated by ‘momentum buyers’, who, extrapolating past price gains, came to believe in ever-rising home prices.

This led the authors to consider what the impact a small group of optimistic buyers could have on house prices and what they found seems consistent with Hong Kong’s current low-transaction-volume highly-distorted housing market.