IDEAS home Printed from https://ideas.repec.org/p/pre/wpaper/201017.html
   My bibliography  Save this paper

Bubbles in South African House Prices and their Impact on Consumption

Author

Listed:
  • Sonali Das

    () (LQM, CSIR, Pretoria)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria)

  • Patrick T Kanda

    () (Department of Economics, University of Pretoria)

Abstract

This paper tests for house price bubbles in the South African housing market, using quarterly data from 1969:Q2 to 2009:Q3, based on the unit root test developed by Phillips et al. 2010. This test allows us to detect whether a bubble exists or not, as well as the date of emergence and collapse of the same. Our findings show evidence of house price bubbles in the large, medium and small-middle segments, as well as, the aggregate middle-segment of the South African housing market. There is however, no evidence of bubbles in the luxury and affordable segments of the market. Next we estimate an Error Correction Model (ECM) to investigate the existence of spillover effects from the housing sector onto consumption. Results indicate significant spillovers, though there is no evidence of the effect being higher during the bubble period. Finally, we disentangle the effects of the house price acceleration and deceleration on consumption in an effort to investigate whether or not consumption reacts asymmetrically to movements in house prices. We find that consumption responds significantly to the house price deceleration but not to acceleration, with this effect also not showing any evidence of being higher during the identified bubble period. The fact that we do not observe consumption to be more responsive to house price acceleration (deceleration) during the bubble period is most likely due two reasons: First, the National Credit Act number 34 implemented in 2005, which enforced responsible granting and use of credit and prohibited reckless awarding of credits (NCA, 2006) and second, the findings of recent studies depicting evidence of pronounced discretionary changes by the South African Reserve Bank to counter the recent adverse movements in the financial markets.

Suggested Citation

  • Sonali Das & Rangan Gupta & Patrick T Kanda, 2010. "Bubbles in South African House Prices and their Impact on Consumption," Working Papers 201017, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201017
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christophe Andre & Rangan Gupta & Patrick T. Kanda, 2012. "Do House Prices Impact Consumption and Interest Rate? Evidence from OECD Countries using an Agnostic Identification Procedure," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 58(1), pages 19-70.
    2. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
    3. Peter C.B. Phillips & Shu-Ping Shi, 2014. "Financial Bubble Implosion," Cowles Foundation Discussion Papers 1967, Cowles Foundation for Research in Economics, Yale University.
    4. Rangan Gupta & Charl Jooste & Kanyane Matlou, 2014. "A time-varying approach to analysing fiscal policy and asset prices in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 6(1), pages 46-63, April.
    5. Paetz, Michael & Gupta, Rangan, 2016. "Stock price dynamics and the business cycle in an estimated DSGE model for South Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 166-182.
    6. Alexander Zimper, 2014. "The minimal confidence levels of Basel capital regulation," Journal of Banking Regulation, Palgrave Macmillan, vol. 15(2), pages 129-143, April.
    7. Roula Inglesi-Lotz & Rangan Gupta, 2011. "Relationship between House Prices and Inflation in South Africa: An ARDL Approach," Working Papers 201130, University of Pretoria, Department of Economics.
    8. Christophe André & Nikolaos Antonakakis & Rangan Gupta & Mulatu F. Zerihun, 2017. "Asymmetric Behaviour in Nominal and Real Housing Prices: Evidence from Advanced and Emerging Economies," Working Papers 201711, University of Pretoria, Department of Economics.
    9. Nicholas Apergis & Beatrice D. Simo-Kengne & Rangan Gupta, 2013. "The Long-Run Relationship between Consumption, House Prices and Stock Prices in South Africa: Evidence from Provincial-Level Data," Working Papers 201326, University of Pretoria, Department of Economics.
    10. Aye, Goodness C. & Balcilar, Mehmet & Bosch, Adél & Gupta, Rangan, 2014. "Housing and the business cycle in South Africa," Journal of Policy Modeling, Elsevier, vol. 36(3), pages 471-491.
    11. Peter C. B. Phillips & Shuping Shi & Jun Yu, 2015. "Testing For Multiple Bubbles: Limit Theory Of Real‐Time Detectors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 1079-1134, November.
    12. Rangan Gupta & Mampho P. Modise, 2012. "Valuation Ratios and Stock Return Predictability in South Africa: Is It There?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(1), pages 70-82, January.
    13. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel Abidin Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working Papers 1211, University of Nevada, Las Vegas , Department of Economics.
    14. Beatrice D. Simo - Kengne & Mehmet Balcilar & Rangan Gupta & Monique Reid & Goodness C. Aye, 2012. "Is the relationship between monetary policy and house prices asymmetric in South Africa? Evidence from a Markov-Switching Vector Autoregressive mode," Working Papers 15-26, Eastern Mediterranean University, Department of Economics.
    15. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2015. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-varying Vector Autoregressive Model," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(2), pages 176-196, August.
    16. Beatrice D. Simo-Kengne & Manoel Bittencourt & Rangan Gupta, 2011. "House Prices and Economic Growth in South Africa: Evidence from Provincial-Level Data," Working Papers 201116, University of Pretoria, Department of Economics.
    17. Rangan Gupta & Mampho P. Modise, 2012. "Valuation Ratios and Stock Return Predictability in South Africa: Is It There?," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(1), pages 70-82, January.
    18. Nikolaos Antonakakis & Mehmet Balcilar & Rangan Gupta & Clement Kyei, 2016. "Components of Economic Policy Uncertainty and Predictability of US Stock Returns and Volatility: Evidence from a Nonparametric Causality-in-Quantile Approach," Working Papers 201639, University of Pretoria, Department of Economics.
    19. Luis A. Gil-Alana & Goodness C. Aye & Rangan Gupta, 2012. "Testing for Persistence with Breaks and Outliers in South African House Prices," Working Papers 201233, University of Pretoria, Department of Economics.
    20. Rangan Gupta & Xiaojin Sun, 2016. "Housing Market Spillovers in South Africa: Evidence from an Estimated Small Open Economy DSGE Model," Working Papers 201641, University of Pretoria, Department of Economics.
    21. Goodness C. Aye & Rangan Gupta & Alain Kaninda & Wendy Nyakabawo & Aarifah Razak, 2013. "House Price, Stock Price and Consumption in South Africa: A Structural VAR Approach," Working Papers 201309, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    House price; bubble; consumption;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G1 - Financial Economics - - General Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pre:wpaper:201017. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rangan Gupta). General contact details of provider: http://edirc.repec.org/data/decupza.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.