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Impact of House Price on Economic Stability: Some Lessons from OECD Countries
Alam I Asadov1, Mansor H Ibrahim2, Ramazan Yildirim3
1Department of Finance, College of Business Administration, Prince Sultan University, Rafha Street, PO Box No. 66833, 11586 Riyadh, Saudi Arabia.
House price instability significantly impacts economic growth, with negative returns being twice as damaging as positive ones. High house price volatility also leads to economic instability, underscoring the need for real estate market regulation.
Area of Science:
- Economics
- Financial Markets
- Macroeconomics
Background:
- Existing research primarily attributes housing bubbles to financial systems and price expectations.
- There is a notable gap in understanding the economic consequences of house price instability.
Purpose of the Study:
- To investigate the relationship between house prices and economic output.
- To analyze the effect of house price volatility on economic stability.
Main Methods:
- Utilized long-spanning quarterly data from 17 OECD countries (1970-2019).
- Developed and tested economic growth and volatility models.
Main Results:
- House price returns exhibit a significant asymmetric impact on economic growth; negative returns are twice as impactful as positive returns.
- House price volatility is a significant contributor to economic instability.
Conclusions:
- Monitoring and regulating the real estate market is crucial for maintaining economic stability.
- Policy recommendations are provided to enhance housing market stability and overall economic health.
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