ANALYZING ASSET OF BUBBLES IN THE HOUSING MARKET WITH RIGHT-TAILED UNIT ROOT TESTS: THE CASE OF TURKEY

Abstract

Purpose- Housing markets are linked to macroeconomic and financial stability. The creation of different financial instruments on residence, the presentation of residence as an assurance, the impact of residence prices on saving and consumption through the wealth effect are some of the housing market and general economic interactions. Developments in the residential sector must be carefully monitored for financial stability. The residential sector has usually played an important role in the global economy and financial sector bubbles. It has been observed that the wealth effect created by the housing bubble surpasses the effect of the stock bubble and that the housing bubble explosion causes more economic devastation compared to the other assets bubbles. While housing markets are increasingly buried in financial markets, the connections between them have strengthened. Such a situation can cause financial crises as a way of extinguishment of a housing bubble. In the case of housing bubbles, bank balance sheets are generally more affected by real estate and it is more likely that the decline in real estate prices are transmitted to the other sectors of the economy with the credit channel. When the housing price bubble burst, the collapse in the financial system is also reflected in the real sector. In this study, with reference to the real housing price index and the real rent price index, it has been investigated whether there is the housing bubble in Turkey.

Methodology- Sup ADF and Generalized SADF (GSADF) tests were used to determine the asset of bubbles and to determine when the housing bubbles had occured. The data set obtained in the study extends from January 2010 to November 2017.

Findings- The results reveal empirical evidence on the absence of speculative bubbles in the Turkish housing market.

Conclusion- There is no data with reference to housing price to say that there is the housing bubble in Turkey during the period under study. Turkey blocked the creation of the housing bubble in the period under review with corrections through its internal dynamics.

Keywords

• The housing bubble,Turkey,SADF,GSADF

References

1. Aoki, K., Proudman, J., & Vlieghe, G. (2004). House prices, consumption, and monetary policy: a financial accelerator approach. Journal of financial intermediation, vol. 13, no. 4, pp. 414-435.
2. Ardila, D., Cauwels, P., Sanadgol, D., & Sornette, D. (2013). Is there a real estate bubble in Switzerland?. arXiv preprint arXiv:1303.4514.
3. Basco, S. (2014). Globalization and financial development: a model of the Dot-Com and the Housing Bubbles. Journal of International Economics, vol. 92, no. 1, pp. 78-94.
4. Brunnermeier, M. K., & Julliard, C. (2008). Money illusion and housing frenzies. The Review of Financial Studies, vol. 21, no.1, pp. 135-180.
5. Caspi, I. (2016). Testing for a housing bubble at the national and regional level: the case of Israel. Empirical Economics, vol. 51, no. 2, pp. 483-516.
6. Cerutti, E., Dagher, J., & Dell'Ariccia, G. (2017). Housing finance and real-estate booms: a cross-country perspective. Journal of Housing Economics, vol. 38, pp. 1-13.
7. Coskun, Y., Jadevicius, A. (2017). Is there a housing bubble in Turkey?. Real Estate Management and Valuation. vol. 25, no. 1, pp. 48-73.
8. Coskun, Y., Seven, U., Ertugrul, H. M., & Alp, A. (2017). Housing price dynamics and bubble risk: the case of Turkey. Housing Studies, pp. 1-37.

9. Crowe, C., Dell’Ariccia, G., Igan, D., & Rabanal, P. (2013). How to deal with real estate booms: lessons from country experiences. Journal of Financial Stability, vol. 9, no. 3, pp.300-319.
10. Çağlı, E. Ç., & Mandacı, P. E. (2017). Borsa İstanbul'da rasyonel balon varlığı: sektör endeksleri üzerine bir analiz. Finans Politik & Ekonomik Yorumlar, vol. 54, no. 629, pp. 63-76.
11. De Bondt, V., Hunter, W. C., Kaufman, G. G., & Pomerleano, M. (2003). Asset price bubbles. The Implications for Monetary, Regulatory, and International Policies.
12. Engsted, T., Pedersen, T. Q., & Tanggaard, C. (2012). The log-linear return approximation, bubbles, and predictability. Journal of Financial and Quantitative Analysis, vol. 47, no. 3, pp. 643-665.
13. Engsted, T., Hviid, S. J., & Pedersen, T. Q. (2016). Explosive bubbles in house prices? Evidence from the OECD countries. Journal of International Financial Markets, Institutions and Money, vol. 40, pp. 14-25.
14. Goodhart, C., & Hofmann, B. (2008). House prices, money, credit, and the macroeconomy. Oxford Review of Economic Policy, vol. 24, no. 1, pp. 180-205.
15. Homm, U. & Breitung, J. (2012). Testing for speculative bubbles in stock markets: a comparison of alter-native methods. Journal of Financial Econometrics, vol. 10, no.1, pp. 198– 231.
16. IMF (2017). Global Housing Watch: Quarterly Update, February. http://www.imf.org/external/research/housing/report/pdf/Q1_2017.pdf>, [Last access on:1 March 2018]
17. Kansu, A. (2011). Konut balonundan finansal krize ABD mortgage krizi. İstanbul: Scala Press.
18. Machaj, M. (2016). Can the Taylor Rule be a good guidance for policy? The case of 2001-2008 real estate bubble. Prague Economic Papers, vol. 2016, no. 4, pp. 381-395.
19. Malkiel, B. G. (2010). Bubbles in asset prices. CEPS Working Paper, no: 200, pp. 1-21.
20. Martori, J. C., Madariaga, R., & Oller, R. (2016). Real estate bubble and urban population density: six Spanish metropolitan areas 2001–2011. The Annals of Regional Science, vol. 56, no. 2, pp. 369-392.
21. Quigley, J. M. (2002). Real estate prices and economic cycles. International Real Estate Review, 1999, vol. 2, no. 1, 1 -20.
22. Phillips, P. C., Shi, S., & Yu, J. (2015). Testing for multiple bubbles: historical episodes of exuberance and collapse in the S&P 500. International Economic Review, vol. 56, no. 4, pp. 1043-1078.
23. Phillips, P. C. B., Wu, Y. & Yu, J. (2011). Explosive behavior in the 1990s Nasdaq: when did exuberance escalate asset values?. International Economic Review, vol. 52, no. 1, pp. 201–26.
24. Scherbina, A., & Schlusche, B. (2012). Asset bubbles: an application to residential real estate. European Financial Management, vol. 18, no. 3, pp. 464-491.
25. Shi, S. (2017). Speculative bubbles or market fundamentals? An investigation of US regional housing markets. Economic Modelling, vol. 66, pp. 101-111.
26. Shiller, R. J. (2003). From efficient markets theory to behavioral finance. Journal of economic perspectives, 17(1), pp. 83-104.
27. Solak, A. O., & Kabaday, B. (2016). Bounds testing approaches to housing demand in Turkey: is there a real estate bubble?. International Journal of Economics and Financial Issues, vol. 6, no. 3, pp. 1132-1135.
28. Xiao, Q., & Devaney, S. (2016). Are mortgage lenders guilty of the housing bubble? A UK perspective. Applied Economics, vol. 48, no. 45, pp. 4271-4290.
29. Vogiazas, S., & Alexiou, C. (2017). Determinants of housing prices and bubble detection: evidence from seven advanced economies. Atlantic Economic Journal, vol. 45, no. 1, pp. 119-131.
30. Zhao, S. X., Zhan, H., Jiang, Y., & Pan, W. (2017). How big is China’s real estate bubble and why hasn’t it burst yet?. Land Use Policy, vol. 64, pp. 153-162.
31. Zeren, F., & Ergüzel, O. S. (2015). Testing for bubbles in the housıng market: further evidence from Turkey. Financial Studies, vol. 19, no. 1, pp. 40-52.