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Housing Prices, Mortgage Payments and Savings Behavior in Taiwan: A Time Series Analysis

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  • Chu‐Chia Lin
  • Yi‐Fang Lai

Abstract

After reaching its peak at the year of 1987, the saving rate of Taiwan dropped quickly in the late 1980s. At the same time, the real average housing prices in Taiwan had increased almost three times from 1987 to 1990. Why did the savings rate in Taiwan drop so quickly after 1987? Does it relate to the dramatic increase in housing prices? Although it has been confirmed that there is a negative wealth effect of housing price appreciation on savings, the estimated wealth effect on savings could be biased if the effect of mortgage payment (also known as forced savings) on saving is neglected. Applying quarterly data from 1981 to 2000 in Taiwan, we employ a time series analysis to compare two saving models, the traditional one and the one with forced saving. As we expected, the negative wealth effect of housing price appreciation on saving is smaller in the forced saving model than in the traditional saving model. By the estimated error correction models (ECMs), ignoring the impact of housing price appreciation on forced saving, the speed of short‐run adjustment in total saving would be significantly slower. For forecasting purposes, the forecast errors in ECM of the forced saving model are smaller than that in the total savings model.

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  • Chu‐Chia Lin & Yi‐Fang Lai, 2003. "Housing Prices, Mortgage Payments and Savings Behavior in Taiwan: A Time Series Analysis," Asian Economic Journal, East Asian Economic Association, vol. 17(4), pages 407-425, December.
    • Handle: RePEc:bla:asiaec:v:17:y:2003:i:4:p:407-425
    DOI: 10.1111/j.1467-8381.2003.00193.x
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    Cited by:

    1. Mei-Se Chien, 2010. "Structural Breaks and the Convergence of Regional House Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 40(1), pages 77-88, January.
    2. Che-cheong Poon & Tai-Yuen Hon, 2015. "Household Savings in Hong Kong: A Statistical Analysis," Journal of Family and Economic Issues, Springer, vol. 36(3), pages 353-368, September.
    3. Wong, Wang-Li & Law, Siong Hook & Said, Rusmawati & Chin, Lee, 2015. "Consumption and Housing Wealth: A Malaysian Case that Demonstrates a Negative Relationship," MPRA Paper 96866, University Library of Munich, Germany.
    4. Ali Güneş & Cengiz Tunç, 2021. "Saving Impact of Mortgage Payments: A Microlevel Study for the U.S. Households," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S2), pages 335-360, September.
    5. Brighita Negrusa & Sonia Oreffice, 2011. "Sexual orientation and household financial decisions: evidence from couples in the United States," Review of Economics of the Household, Springer, vol. 9(4), pages 445-463, December.
    6. Chen, Chien-Liang & Kuan, Chung-Ming & Lin, Chu-Chia, 2007. "Saving and housing of Taiwanese households: New evidence from quantile regression analyses," Journal of Housing Economics, Elsevier, vol. 16(2), pages 102-126, June.
    7. Chien-Hsun Chen, 2018. "The Housing Affordability Crisis and Government Policy Actions in Taiwan," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 334-347, September.
    8. Wen‐Shwo Fang & Kuan‐Min Wang & Thanh‐Binh T. Nguyen, 2008. "Is Real Estate Really an Inflation Hedge? Evidence from Taiwan," Asian Economic Journal, East Asian Economic Association, vol. 22(2), pages 209-224, June.

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