The impact of stock market and macroeconomic variables on real estate prices dynamics: evidence from Saudi Arabia

Abstract

To enhance portfolio return and achieve diversification, Saudi investors have long been seeking opportunities in real estate markets since the crash of Saudi stock market on February 2006. The aim of this paper is to explain the determinants of real estate price dynamics in the case of Saudi Arabia. Using monthly data from January 2008 to December 2012, we examine the impact of key monetary policy and macroeconomic variables, including money supply growth, inflation rates and interest rate, on the real estate price growth dynamics in Saudi Arabia. We study also the effect of stock market conditions (return and conditional volatility) on explaining real estate price movement. This study has important implications for investment decision and real estate market analysis in the case of an important real estate market.