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Regime changes in housing prices' reaction to macroeconomic variables in emerging African market

Author

Listed:
  • Adefemi A. Obalade
  • N. Dludla
  • R. Nhlapho

Abstract

Understanding the functioning of the housing market in relation to the economy remains an important task. This study employs a Markov switching model to investigate the effect of selected macroeconomic variables on the housing prices in South Africa for the 1999-2020 period. The results indicate that the bear regime is more persistent than the bull regime in the housing market. The effects of interest rates, unemployment, and inflation are regime-dependent, while the effects of exchange rate, money supply, GDP and rent on housing prices are invariable. Housing prices are an increasing function of rent irrespective of the regime. Key macroeconomic variables such as the unemployment, GDP and interest rate were found to have a negative impact on housing prices. The findings of this study have implication for global housing markets as failure to consider the possibility of changing regime in the housing market was one of the reasons for the global financial crisis in 2007/2008.

Suggested Citation

  • Adefemi A. Obalade & N. Dludla & R. Nhlapho, 2024. "Regime changes in housing prices' reaction to macroeconomic variables in emerging African market," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 20(3/4), pages 278-286.
    • Handle: RePEc:ids:ijepee:v:20:y:2024:i:3/4:p:278-286
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