U.S. Housing as a Global Safe Asset: Evidence from China Shocks

55 Pages Posted: 19 Nov 2021

See all articles by William Barcelona

William Barcelona

Board of Governors of the Federal Reserve System

Nathan Converse

Board of Governors of the Federal Reserve System

Anna Wong

Board of Governors of the Federal Reserve System

Date Written: November, 2021

Abstract

This paper demonstrates that the measured stock of China's holding of U.S. assets could be much higher than indicated by the U.S. net international investment position data due to unrecorded historical Chinese inflows into an increasingly popular global safe haven asset: U.S. residential real estate. We first use aggregate capital flows data to show that the increase in unrecorded capital inflows in the U.S. balance of payment accounts over the past decade is mainly linked to inflows from China into U.S. housing markets. Then, using a unique web traffic dataset that provides a direct measure of Chinese demand for U.S. housing at the zip code level, we estimate via a difference-in-difference matching framework that house prices in major U.S. cities that are highly exposed to demand from China have on average grown 7 percentage points faster than similar neighborhoods with low exposure over the period 2010-2016. These average excess price growth gaps co-move closely with macro-level measures of U.S. capital inflows from China, and tend to widen following periods of economic stress in China, suggesting that Chinese households view U.S. housing as a safe haven asset.

Keywords: China, Housing and real estate, Capital flows, Safe assets

JEL Classification: F30, F60, R30

Suggested Citation

Barcelona, William and Converse, Nathan and Wong, Anna, U.S. Housing as a Global Safe Asset: Evidence from China Shocks (November, 2021). Available at SSRN: https://ssrn.com/abstract=3965183 or http://dx.doi.org/10.17016/IFDP.2021.1332

William Barcelona (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Nathan Converse

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Anna Wong

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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