The role of sentiment in housing market with credit-led funding: the case of Turkey

Abstract

This paper investigates the long run relationship among sentiment, which is defined as the aggregate investor attitude, housing credit and prices, and supply in Turkish housing market over the period of 2010:01 and 2018:06. The empirical results indicate that there is a long run relation among above stated variables. This study confirms the role of credit in explaining the increases in house prices. Importantly, this paper finds that the sentiment is significant in forecasting housing credit volume and supply on housing in the short run. The results also highlight the importance of sentiment as a factor at work in explaining the housing prices and supply of dwellings in the long run. Moreover, counterfactual scenarios on house price path suggests that the housing prices are sensitive to changes in sentiment as in credit volume, but with a lesser magnitude.