“China Socionomics 2”

Last week we provided Socionomic evidence that that investors’ do not buy low and sell high, as per the popular myth, but subconsciously herd, selling as prices fall and buying as prices rise, showing the Shanghai Composite stock-index against new share accounts opened as an example, albeit that it would have shown the same picture for any other stock market around the globe.

This week we show that it’s the same for housing and we’ll stick with China, being as it’s been a roller-coaster ride for house prices over the past decade.

2 April 2015 Blog 1

House price inflation, shown by the black & red-bar chart, represents the average price of the main 70 China cities, whilst the blue line shows the change in loan demand, also annualised, which we have used as a “proxy” on home sales, being as the data is so limited.

You will note that loan growth has a close correlation with the rise and fall of house price inflation, so once again punctures the myth that humans buy low and sell high.

There is a reason for this. In matters non-financial, such as “buy one get one free,” in respect of everyday goods, it’s logical to stock up and to perhaps refrain from purchasing when prices rise, or the BOGOF offer ends

Financial decision making is fraught with uncertainty, particularly in respect of the price paid, be it for a security or for a property, hence sub-consciously humans tend to herd assuming that the crowd knows the correct price.

 

 

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