Conditions of Mortgage Market Development: A Critical Emprical Review for Turkey

Abstract

This paper aims to define conditions of mortgage market development in Turkey in a period of (2005: 01)-(2011: 09) by defining dynamic causal relationships between volume of housing credit and macroeconomic indicators. We employ VAR, cointegration analysis, VECM, Granger causality tests, impulse-response functions and variance decomposition models. In the long term equation, real interest rate variable is negatively and residential buildings floor area according to occupancy permits, real GDP per person and monetary aggregate/financial wealth (M2) variables are positively cointegrated with housing credit. According to impulse-response/variance decomposition findings, the most effective variables on housing credit are consecutively defined as occupancy permits, real interest rate, real GDP per person and M2. Outcome of models also implies that development of mortgage market may be also related to complex socio-economic/politic processes such as solving income inequalities besides conventional conditions involving financial stability, mortgage costs, housing demand and housing market activity level.