Abstract
This study analyzes the empirical relationship between the vKOSPI, which is the Korean VIX (implied volatility index), and the housing market (rent1-to-house price ratio) based on monthly data from January 2003 to November 2012. The data were divided into two parts before and after the global financial crisis in 2008 and were analyzed by using the Vector Autoregressive (VAR) Model. The research results show that the influence of vKOSPI on the housing market changes from symmetric to asymmetric since the global financial crisis in 2008. Before the global crisis in 2008, the influence of the vKOSPI on the house price index and rent index is almost the same, so the influence on the rent-to-house price ratio is not statistically significant. However, since the global crisis in 2008, the influence of the vKOSPI on the two prices has changed asymmetrically and the influence on the rent-to-house price ratio was statistically significant. Second, the influence of the vKOSPI fluctuation on house sale prices and rent is shown differently according to the rise/fall of the vKOSPI. In the event of the vKOSPI rising, house prices would fall greatly. On the other hand, in the event of the vKOSPI falling, the rise in housing prices is relatively small. This means that while the boosted sentiment of investors in the stock market is not transferred to the housing sales market, the aggravated sentiment of investors affects the housing sales market easily. In conclusion, the uncertainty has been represented in the vKOSPI and the preference for risky assets has an asymmetrical influence on the market dependent upon the kind of market. We suspect that this is caused by complex factors including shrinking expectations for future house prices.
Highlights
The major factors that influence the housing market are economic circumstances, economic bubbles, and policies
Among many factors that have influence on the housing market, this study investigates the influence of economic uncertainty or the sentiment/attitude of investors toward risky assets, which is represented in the vKOSPI, on housing market
The influence of the vKOSPI on the rent-to-house price ratio is insignificant until the financial crisis in 2008, but it become significant after the crisis
Summary
The major factors that influence the housing market are economic circumstances (this is a fundamental factor), economic bubbles, and policies. Since a house is a risky asset, it is affected by the sentiment of investors. The global financial crisis in the latter half of 2008 began in the USA and spread worldwide. It originated from the real estate crisis. It is widely recognized that rapid fluctuation of real estate prices had a negative influence on the economy. Most economic specialists suspect that low interest rates and excessive mortgage loans created the soaring house prices in the USA, and the fall of the collateral value of a house due to the collapse of the housing bubble generated inferior assets in the banks
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