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Housing Market and Macroeconomic Fundamentals

  • Orhan Erdem
  • Hande Oruc
  • Yusuf Varli

This paper uses vector error correction model (VECM) to identify the impacts of fundamental macroeconomic factors on the demand and supply sides of the Turkish housing market, between October 2007 and December 2011. Many researches argue that housing market and macroeconomic fundamentals such as interest rate, gross domestic product (GDP), housing prices and some others are cointegrated. In the light of the evidence on two cointegrating equations, error correction model is estimated to examine the effect of the variables on housing demand and supply in Turkey. While the dependent variable in demand side is mortgage credit volume, the dependent variable that is used to explain the supply side is construction permit. The study reveals that the macroeconomic variables have different impacts on the dynamic behavior of mortgage credit and construction permit. Additionally, the impulse response analysis which is based on structural VECM suggests that the housing market in Turkey is sensitive to the shocks in the economy. This paper also presents forecast error variance decompositions (FEVD) and indicates the important role of GDP per capita on mortgage credit in the long run.

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File URL: http://www.borsaistanbul.com/datum/imkbdergi/EN/isereview51.pdf
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Article provided by Research and Business Development Department, Borsa Istanbul in its journal Istanbul Stock Exchange Review.

Volume (Year): 13 (2013)
Issue (Month): 51 (April)
Pages: 58-81

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Handle: RePEc:bor:iserev:v:13:y:2013:i:51:p:58-81
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  1. Carliner, Geoffrey, 1973. "Income Elasticity of Housing Demand," The Review of Economics and Statistics, MIT Press, vol. 55(4), pages 528-32, November.
  2. Durmaz, Nazif, 2011. "Housing Prices and Fundamentals: The Role of a Supply Shifter," MPRA Paper 28556, University Library of Munich, Germany.
  3. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "Explaining House Prices in Australia: 1970-2003," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages S96-S103, 08.
  4. Ricardo Gimeno & Carmen Martínez-Carrascal, 2006. "The interaction between house prices and loans for house purchase. The Spanish case," Banco de Espa�a Working Papers 0605, Banco de Espa�a.
  5. Sophocles N. Brissimis & Thomas Vlassopoulos, 2007. "The Interaction between Mortgage Financing and Housing Prices in Greece," Working Papers 58, Bank of Greece.
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