The Causality between Mortgage Credit and House Prices: The Turkish Case


Akçay S. B. , Akyüz M. , Karul Ç.

World Finance Conference, Aust-Agder, Norway, 3 - 06 August 2021

  • Publication Type: Conference Paper / Unpublished
  • City: Aust-Agder
  • Country: Norway

Abstract

Since housing is one of the most expensive commodities in many countries and hence most of households need to borrow from residential mortgage markets to obtain it, it has been seen that there is a close linkage between credit and housing markets. Particularly, since 1990’s with an increasing dependency on the domestic financial markets with international financial markets caused by an increasing degree of financial liberalization, the effects of this relationship on the financial sector and on the economy have grown in many countries as proved by the sovereign debt crisis in Ireland and Spain as well as the US subprime mortgage crisis. However, based on the literature review, there is no study on the causality between credit supply and house price covering Turkey. Thus, our aim is to examine whether there is a causal relationship between both dynamics in Turkey by applying four causality tests: Granger Causality Test, Toda-Yamamoto Causality Test, Fourier Granger Causality Test and Fourier Toda-Yamamoto Causality Test. The findings show that there is a strong one-way causality between mortgage credit and house prices, and that the developments in credit markets are more decisive in the relationship between mortgage credit and house prices than the developments on the housing markets. These results are also confirmed by those of the developments in both credit supply and housing markets during the last three decade.