Housing wealth effect and tenure choice: An endogenous switching regression analysis

Market sentiment has been playing a important role in Chinese housing market in last two decades, while has not received enough attentions in literature. With this in mind, this paper first establishes sentiment index depicting housing market sentiment in China. Then, the paper uses an endogenous switching regression model to investigate how housing price affects joint determination of housing choice and non-housing expenditure, with regard to the moderating role of market sentiment. This paper finds that the rising housing prices is negatively related to the probability of being an owner and positively associated with consumption. However, the counter-factual analysis the choice of being a owner has a negative effect on consumption over all and such an effect can be weakened by having a mortgage. A higher sentiment can improve the likelihood of home ownership and reduces non-housing consumption. This study helps households to optimize the wealth allocation and governments in their housing policy strategies and developers in their property development. © 2022 Elsevier Ltd.