Analysis of the correlation between the evolution of the consumer loans and the evolution of household income in Romania

Study of the literature and the models used in other countries, with higher or lower degrees of development for their financial and banking systems, raise for Romania, in our opinion, several issues which deserve a closer research. One of those issues concerns the fundamentals of real estate prices and the influence of household income, demographic changes and credit access on the dynamics of the housing market. Another area of interest is centered on the manifestation of a wealth effect that is associated with owning a property; as such an effect is present in other countries, as reported in literature. The National Bank of Romania defines this phenomenon as “the effect of the wealth value on the decisions of the population and the companies, regarding their consumption and investment decisions”. This effect can be generated either by variations in the value of assets owned (stocks, financial assets, real estate, etc.), or by the level of debt (i.e. housing, consumption, investment loans, including payments due). Therefore, such an increase in the population’s net wealth or an improvement of companies’ balance sheets can manifest a positive effect on consumption and investment, thus benefiting the aggregated demand. In a future research we plan to study the influence of the real estate market on Romania’s economy, especially through lending, construction activity, household consumption and stock market investment, with the aim of measuring this effect. The three directions for research require in-depth analysis of the complex dynamics of the sectors connected to the housing market and the acquiring of pertinent and up-to-date statistical data which should reflect price changes and other parameters of this field of study. Given the limitations of our database, with a narrow access to data regarding the direct population consumption, we have chosen to use the values for lending in lei as a proxy, which indirectly mirrors the indicator we wish to include in the research. We believe that the final purpose of the consumption loan reflects, in a significant measure, the population’s inclination towards consumption. With this in mind, we will analyze the correlation between the evolution of consumption lending and the population income. From here we will ascertain the inclination towards housing investment.