Abstract
AbstractThere was a notable housing price inflation in aggregate/local levels in Turkey during the last few years. Although the country’s economic fundamentals remain strong, the probability of a housing bubble is a heated debate among market participants. This timely investigation brings greater clarity to whether the Turkish housing market is in a bubble. The study uses a multi-strand approach to dissect the bubble over the period of Jan. 2010 - Dec. 2014. First, monthly/annual price-to-income and monthly price-to-rent ratios are examined for the national Turkish as well as regional Istanbul, Izmir and Ankara housing markets. Second, an extended CASE and SHILLER (2003) model is applied assessing the interdependence between housing prices and a series of explanatory variables. Lastly, the Right Tail Augmented Dickey-Fuller (Rtadf) test is performed to support the overall analysis. This study finds that neither affordability ratios nor regression estimates support the existence of the bubble in Turkey.
Highlights
There is a general agreement that speculative behaviors affecting housing prices may result in bubbles that subsequently collapse, affecting governments, businesses and individuals (AKERLOF, SHILLER 2009; KINDLEBERGER, ALIBER 2005; SHILLER 2006, 2014a)
Monthly/annual housing price-toincome (HPI) and monthly housing price-to-rent (HPR) housing affordability ratios were examined for Ankara, Istanbul, Izmir and Turkey over the period 2010 - 2014 for the first time in an academic study
Even though housing priceto-rent (HPR) ratios indicatively suggest overvaluations, we provide evidence that neither housing price-to-income (HPI) nor HPR analyses clearly show the examined housing markets to be in a bubble due to the lack of dramatic/explosive movements in income, housing rent, and housing price series
Summary
There is a general agreement that speculative behaviors affecting housing prices may result in bubbles that subsequently collapse, affecting governments, businesses and individuals (AKERLOF, SHILLER 2009; KINDLEBERGER, ALIBER 2005; SHILLER 2006, 2014a). Numerous global institutions/international media outlets have expressed their concerns Their concern is that if the Turkish housing market is in a bubble and this is not addressed systematically, prices will fall precipitously at some future date. It employs a multi-strand approach to assess whether the housing market is in a bubble in aggregate/local levels in Turkey. The observation period is necessarily short, because the employed housing price series started in 2010 The latter two challenges, for the most part, constitute acceptable limitations, our study contributes to literature by addressing the first challenge. By using national level data, the study is the first to attempt to construct monthly price-to-income and price-to-rent affordability series for Turkey, Istanbul, Ankara and Izmir in an academic study.
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