Linear and Nonlinear Dynamics of Housing Price in Turkey

Abstract

The housing sector have an important size in economic activities of Turkey. This sector could give employment opportunities to an important size of skilled and unskilled workforce. Furthermore, decreasing rental costs would cause an increase in household savings, the cost of owning a house decreases. Therefore, having knowledge about the dynamics of housing prices is very crucial for economic policymakers. In this paper, the dynamics between house prices and macroeconomic variables including inflation, interest rates, unemployment and real domestic product are reviewed. Despite the well-known fact that macroeconomic variables possess asymmetric and nonlinear features, many studies about the dynamics of housing prices have been tested only within a linear framework. Therefore, in this paper non-linear autoregressive distributed lag (NARDL) model is used to explore asymmetrical relations in the long-run. Data for this study was obtained from Turkish Statistical Institute as monthly data and ranges from January 2003 to January 2016. Despite the fact that there are many researches in this field, the effect of interest rates indicated a negative sign. Negative effect of both nominal interest rates and inflation on housing prices alongside of greater impact of inflation in comparison with nominal interest rate would cause the long-run coefficient of real interest rate to be positive. Furthermore, this could explain the positive relation between the unemployment rate and housing prices. Any increase in unemployment could be interpreted as a negative impact on the future of economy and encourage risk avoider investors to buy more risk - free properties. The negative sign on the long-run relationship between housing prices and industrial production index is the main focus of this paper. Most of researches have claimed positive relation between housing prices and income. According to substitutionary character of housing sector and industrial sector, the relation between them could explain negative sign of long-run relationship.