Causal relationship between macroeconomic indicators and housing prices: Evidence from Turkey

The housing market is an essential part of a nation's economy and represents the most important component of the wealth accumulation. There is also a relatively recent, growing recognition about importance of the interactive nexus between house prices and macroeconomic variables. This casual relationship is apparently stronger in developed countries having strong real estate-finance linkages. But it would be also important to underline that globalization of the financial and real estate markets may also result similar outcomes in emerging countries. By utilizing Vector Error Correction Model (VECM) and Granger Causality Tests for the period (2007:6) to (2011:12), the primary purpose of this paper is to examine dynamic causal relationships between house prices and a wide range of macro-economic indicators (including rent values, volume of mortgage loans, consumer price index, monetary aggregate, Istanbul Stock Exchange REIT index, exchange rates, unemployment rate, construction cost index, consumer confidence index, construction permits, mortgage loan interest rate, gross domestic product, current account deficit and CDS spreads). In this context, the paper also empirically analyzes the negative impacts of global financial crisis into Turkish housing markets. To our knowledge, this paper is the first attempt to use actual country-wide house price index in an analysis related to Turkish housing markets.