Abstract:In recent years, the swift growth of China's real estate prices has drawn a wide attention. However, the studies on the factors influencing real estate prices in China are mainly qualitative in nature, with few quantitative and empirical analyses. In this paper, an empirical analysis of relationship between real estate prices and Gross Domestic Product (GDP) is made based on China's time-series statistics from 1987 to 2004 and with methods of co-integration test, Error Correction Model (ECM), Granger causality test. Empirical evidences show that there exists a long-term and steady dynamic equilibrium relationship between China's real estate prices and GDP. From both long-term and short-term points of view, China's GDP is the Granger cause for the variations of real estate prices. The trend of GDP has a decisive effect on both the increase and decrease of real estate prices. Therefore, the data of the fluctuation of GDP can be very useful in predicting the trend of real estate prices. Overheated economy during a short period will lead to a rapid increase of real estate prices.