House Price Dynamics and Consumer Sentiment in an Era of Destabilizing Macroeconomic Conditions: Empirical Evidence from Türkiye

33 Pages Posted: 27 Dec 2022

See all articles by Mehmet Balcilar

Mehmet Balcilar

University of New Haven

Ojonugwa Usman

Istanbul Ticaret University

Murat Yulek

International Monetary Fund (IMF)

Busra Agan

Eastern Mediterranean University

Bahar Erdal

OSTİM Technical University

Date Written: December 24, 2022

Abstract

This study analyzes changes in the connectedness of 26 regional house prices in Türkiye and determines how consumer sentiments affect connectedness in the era of destabilizing macroeconomic conditions over the period from January 2010 to April 2022. To this end, we estimate network connectedness using a Lasso VAR model and time-varying analyses using a rolling linear VAR model for the pre-crisis and post-crisis periods. Our empirical results provide evidence of a high connectedness of house prices, with a greater degree of connectedness witnessed during the post-crisis period across regions in Türkiye. The results further divulge that Ankara (region TR51) is a major transmitter of connectedness during the pre-crisis period, while Istanbul (region TR10) is a major transmitter of connectedness during the post-crisis period. By and large, our results show that the degree of connectedness is associated with the period of financial and economic destabilization, characterized by a significant depreciation of the local currency, rising inflation rates, and an increasing cost of borrowing accompanied by rising loan restructurings and defaults. Furthermore, the empirical results indicate substantial evidence of a positive impact of consumer sentiment on the degree of connectedness during the post-crisis period. These empirical results are validated by the results of the time-varying Granger causality tests.

Keywords: House prices, network analysis, connectedness, Granger causality, macroeconomic crisis, Türkiye

JEL Classification: R30, R32, E71, C32

Suggested Citation

Balcilar, Mehmet and Usman, Ojonugwa and Yulek, Murat and Agan, Busra and Erdal, Bahar, House Price Dynamics and Consumer Sentiment in an Era of Destabilizing Macroeconomic Conditions: Empirical Evidence from Türkiye (December 24, 2022). Available at SSRN: https://ssrn.com/abstract=4311520 or http://dx.doi.org/10.2139/ssrn.4311520

Mehmet Balcilar (Contact Author)

University of New Haven ( email )

300 Boston Post Road
West Haven, CT 06516
United States

HOME PAGE: http://www.mbalcilar.net

Ojonugwa Usman

Istanbul Ticaret University

Murat Yulek

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Busra Agan

Eastern Mediterranean University ( email )

Salamis Road
Gazimagusa, Via Mersin-10 99628
Turkey

Bahar Erdal

OSTİM Technical University

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