The role of sentiment in housing market with credit-led funding: the case of Turkey
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The role of sentiment in housing market with credit‑led funding: the case of Turkey Ahmet Usta1 Received: 18 June 2019 / Accepted: 1 August 2020 © Springer Nature B.V. 2020
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. Keywords Sentiment · Credit · House prices · Housing market · Turkey JEL Classification E51 · E71 · G12 · R21 · R31
1 Introduction The determinants and effects of housing prices have always been important to follow for practitioners and policy makers. Historically, booms in housing market end up with economic contractions and financial instability. For example, peaks in housing prices in advanced economies were observed on the eve of recent episodes of crisis.1 Particularly, the US experienced a continuous increase in real property prices around 2006 and crisis erupted in 2007. Prices in Euro area had reached their peak points shortly before the economic contraction occurred. These experiences in advanced economies would imply that 1
See Panel A and Panel B of Fig. 1.
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1090 1-020-09776-y) contains supplementary material, which is available to authorized users. * Ahmet Usta [email protected] 1
Department of Economics, Recep Tayyip Erdogan University, Room 606, 53100 Rize, Turkey
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the housing price booms are likely to be indicators of possible downturn in an economy. Therefore, policymakers and authorities in developing economies should also consider peaks in housing prices would be a signal of possible threat for economic performance. An imbalance or a contraction in housing market may create financial instability (Koetter and Poghosyan 2010). Global housing prices exhibit dramatic appreciation and these increases in housing market withdraw attention because price rises cannot be credited to fundamental macroeconomic factors but to speculative and psychological factors (Gallin 2006). The recent experience of boom and bust cycle in home prices in the US and European countries address human psychology to account for the dramatic price increases in housing market. Speculative thinking among investors plays important role in forming future
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