Housing price cycles and aggregate business cycles: stylised facts in the case of Malaysia

We document how housing price cycles relate to broader economic cycles in terms of (i) lead-lag characteristics and (ii) causal linkages between cyclical fluctuations in house prices and cyclical fluctuations in other parts of the economy. Consistent with the findings in the extant literature, our results show that housing price is pro-cyclical with respect to the aggregate business cycle. Second, cyclical variations in house prices are more strongly correlated with the real economy than with the financial sector. Third, housing price cycles are rather autonomous in the sense that they can be predicted by only a limited number of macroeconomic time series. While house price is a good in-sample predictor for cyclical fluctuations in various macroeconomic time series, the out-of-sample performance suggests that house price is appropriate for predicting a more limited range of macroeconomic cycles. Some policy implications follow from these findings.