The effect of macroeconomic factors on the price of housing in Turkey

Household wealth is mainly determined by the possession of the house. Because of this reason, volatility in housing prices effect households` investment and consumption decisions substantially. A given change in housing prices, influence both marginal propensity to consume via wealth effect and borrowing capacity via collateral effect. However, housing market has strong back and forward linkages with the other sectors of the economy, and as a result of this fact, housing prices are substantially affected by the changes in economic conditions and at the same time, brings about important effects on the economy. Therefore, housing market is considered as a barometer, such as stock exchange markets.Main purpose of this dissertation is, by using VAR model, to analyze effects of main macroeconomic indicators on the housing prices in Turkey for the time period which covers 2007 ? 2010. In the VAR analysis, impulse-response functions, variance decompositions and Granger causality tests have been applied. Main conclusions of this study suggest that, housing prices is mainly explained by the selected macro-economic variables. Furthermore, it is been concluded that direction of relationship is from macro-economic indicators to housing prices. From the economic policy standpoint, housing price channel via interest rates plays significant role on the monetary transmission mechanism.Keywords : Housing Prices, Wealth Effect, Collateral Effect, VAR, Housing Market.