Mortgage credit and house prices: the Turkish case

Abstract

Purpose The purpose of this study is to examine whether there is a causal relationship between mortgage credit and house prices in Turkey. Design/methodology/approach Granger causality test, Toda-Yamamoto causality test, Fourier Granger causality test and Fourier Toda-Yamamoto causality tests are applied. Findings The findings show that there is a strong one-way causality between mortgage credit and house prices and that the developments in credit markets are more decisive in the relationship between mortgage credit and house prices than the developments in the housing markets. Practical implications Considering a causal relationship between mortgage credit and house prices may contribute to more efficient use of the tools of both macroeconomic and microeconomic policies for the mortgage credit and housing markets in Turkey. Furthermore, by understanding the importance of the direction of causality between both dynamics, it may be possible to prevent and/or mitigate the negative effects of large house price movements on both Turkish housing and mortgage markets as well as on Turkish economy. Originality/value To the best of the authors' knowledge, the contribution of this study is to examine for the first time whether the causal relationship between mortgage credit and house prices in Turkey is mutual as well as to apply four different causality tests and to compare their results for the first time.