The Study About Money Illusion On The Real Estate Market’s Prices In Our Country

This paper studies the impact of money illusion on real estate prices in domestic residentialmarket.Through the log-linear opetation on the basic revenue function of house price,thispaper break down the price-rent ratio into three parts:the impact of basic fundamentals onhouse price,the risk premium and the money illusion effect.This paper estimated theobjective expected rental growth rate by VAR model,then minused by price-rent ratio getobjective expected rate of return,so the money illusion can be expressed as the residuals ofOLS about Linear equation on objective expected rate of return and subjective expected rateof return.Then this paper analyzed the relarionship between money illusion and inflation inGuangzhou、Beijing、Shenzhen、Tianjin、Dalian,as well as fundamentals and risk premium.This paper found that,in the2001-2005period,the inflation is lower,the house price isundervalued,people’s desire to invest in real estate is not very strong.In2005-2008,theinflation has accelerated,money illusion increases with inflation, Meanwhile peoele increasesthe real estate investment to avoid risks; Thus, this period can use risk premium effect andmoney illusion to explain.From the first quarter of2008,when inflation increase to a certainex tent height,money illusion disappears,people have begun to take into account the impactof inflation when making investment decisions.However,in Tianjin and Dalian the isresiduals still greater than zero,indicating that money illusion does not disappear.