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Housing price uncertainty and housing prices in the UK in a time-varying environment

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Abstract

This study offers a new perspective on the dynamic causal relationship between housing price uncertainty and housing prices in a time-varying environment for the UK for the first time in the literature. This study aims to investigate whether housing market uncertainty has any time-varying effect on housing prices between 1998:Q1 and 2019:Q2. A key distinction of this study is the use of a news-based housing price uncertainty index. This index measures uncertainty pertaining especially to the housing market in the UK. To this end, we include two main classes using time-varying parameter, rolling estimation and recursive rolling estimation for robustness analysis. Furthermore, we add economic policy uncertainty into the models to see whether housing market uncertainty has predictive power after controlling for economic policy uncertainty because housing market uncertainty may be largely driven by economic policy uncertainty and key macro-economic indicators. It turns out that there is a part of housing market uncertainty beyond economic policy uncertainty that helps to predict housing prices in UK. These outcomes are reinforced by the results of time-varying Granger causality tests that real housing price index is largely driven by the housing price uncertainty index. Furthermore, it is found that the uncertainty variables have a negative impact on real housing prices. This position calls for insolation in the housing market in UK from externalities such as housing price uncertainty.

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Notes

  1. The period of the data is determined by the data availability. Particularly, the house price uncertainty is available until 2019Q4 while the economic policy uncertainty data starts in 1998Q1.

    See https://uk.housing-observatory.com/resources.html.

    See https://www.nationwide.co.uk/about/house-price-index.

    See https://www.policyuncertainty.com

  2. Constructed by United Kingdom Housing Observatory. See https://uk.housing-observatory.com/resources.html

  3. The period of the data is determined by the data availability. Particularly, the house price uncertainty is available until 2019Q2 while the economic policy uncertainty data begins from 1998Q1.

  4. See https://uk.housing-observatory.com/resources.html.

  5. See https://www.nationwide.co.uk/about/house-price-index.

  6. See https://www.policyuncertainty.com

  7. For the brevity of space, complete details of the unit root tests are provided in the Appendix section (see Table 4).

  8. We have also estimated lag augmented VAR (LA-VAR) based Wald Granger causality tests of Shi et al. (2020), which employs the method proposed by Toda and Yamamoto (1995), per the recommendation of an anonymous referee. The LA-VAR method is robust to the presence of potentially integrated variables in estimated models. The results of the LA-VAR method do not alter any of our key findings. Although test results are somewhat weaker during certain time periods, this can be attributed to the LA-VAR model's inclusion of additional lag. Our most important findings are qualitatively robust to the possibility of nonstationary series in the models we estimate. To conserve space, the results for the LA-VAR models are not reported but are available upon request from the authors.

  9. Indeed, we do not take the sum of the coefficients in our case since the lag order is 1 and there is a single coefficient for the first lags of LHPU and LEPU.

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Authors and Affiliations

  1. Eastern Mediterranean University, North Cyprus, Turkey

    Mehmet Balcilar

  2. OSTIM Technical University, Ankara, Turkey

    Mehmet Balcilar

  3. Faculty of Economics Administrative and Social Sciences, Department of International Logistics and Transportation, Istanbul Gelisim University, Istanbul, Turkey

    Gizem Uzuner & Festus Victor Bekun

  4. Adnan Kassar School of Business, Department of Economics, Lebanese American University, Beirut, Lebanon

    Festus Victor Bekun

  5. University of Nebraska at Omaha, Omaha, NE, 68182, USA

    Mark E. Wohar

Authors
  1. Mehmet Balcilar
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  2. Gizem Uzuner
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  3. Festus Victor Bekun
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  4. Mark E. Wohar
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Correspondence to Mark E. Wohar.

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Appendix

Appendix

See Tables 3, 4 and Figs. 7, 8, 9, 10.

Table 3 List of variables, definitions and sources
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Table 4 Unit root test results
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Fig. 7
figure 7

Time-varying Wald statistics for the Granger causality from housing price uncertainty to housing price for the extended models. Note Critical values are taken from Rossi (2005)

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Fig. 8
figure 8

Rolling and recursive-rolling Wald statistics for the Granger causality from housing price uncertainty to housing price for the extended models. Note Critical values are obtained with 2000 bootstrap replications

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Fig. 9
figure 9

Time-varying Wald statistics for the Granger causality from consumer sentiment to housing price

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Fig. 10
figure 10

Rolling and recursive-rolling Wald statistics for the Granger causality from consumer sentiment to housing price

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Balcilar, M., Uzuner, G., Bekun, F.V. et al. Housing price uncertainty and housing prices in the UK in a time-varying environment. Empirica 50, 523–549 (2023). https://doi.org/10.1007/s10663-023-09567-y

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