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What Causes House Prices to Fluctuate? Evidence from South Korea

Author

Listed:
  • Jinwoong Lee

    (: Department of Economics, Korea University, 145 Anamro, Seongbukgu, Seoul, Korea 02841)

  • Jihee Ann

    (Associate Research Fellow, Research Division, Korea Real Estate Research Institute, 52 Bangbaero, Seochogu, Seoul, Korea 06705)

  • Cheolbeom Park

    (Department of Economics, Korea University, 145 Anamro, Seongbukgu, Seoul, Korea 02841)

Abstract

In this study, we build a structural vector autoregressive model of the housing market with supply and demand shocks to determine the main causes of house price movements in South Korea. We include housing permits, basic housing demand which is constructed in a similar manner to Mankiw and Weil (1989) and the growth rates of real housing prices in the model, and decompose changes in house prices into three structural components: housing supply shocks, shocks to basic housing demand, and shocks to housing-market-specific demand. We find that the main driver of the movements in house prices is housing-marketspecific demand shocks, and these are associated with beliefs regarding future house prices and the real estate market, as measured by the Consumer Sentiment Indices for the housing market, rather than credit conditions or financial variables such as interest rates or stock returns.

Suggested Citation

  • Jinwoong Lee & Jihee Ann & Cheolbeom Park, 2021. "What Causes House Prices to Fluctuate? Evidence from South Korea," Discussion Paper Series 2103, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:2103
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w2103.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    House prices; Shocks to housing-market-specific demand; Beliefs; Credit conditions; Interest rate;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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