Macroeconomic Factors and Housing Prices in the Helsinki Metropolitan Area
Golovkina, Julia (2020-10-21)
21.10.2020
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2020102185863
https://urn.fi/URN:NBN:fi-fe2020102185863
Tiivistelmä
The housing price fluctuations are closely linked to the development of the whole national economy. Macroeconomic changes, which can, to some extent, be impacted by the political decision-making, reflect widely to the functioning of the whole economy as well as to the housing markets. Because the changes in housing prices also affect the development of the macroeconomic factors, the relationship is interrelated. Thus, it is important to understand the drivers that influence housing price formation. Moreover, housing price fluctuations also affect households’ wealth distribution and, hence, their consumption. The phenomenon is also known as the wealth effect.
The purpose of this study is to examine the movements between the key macroeconomic variables, i.e., the building cost index, the GDP, interest rate, the CPI, household debt, OMX Helsinki, and unemployment rate, and the housing price development in the Helsinki Metropolitan area, also referred as the HMA. The selected region is of particular interest as it is the capital region of Finland that comprises the majority of the economic activity of the country. Also, according to the previous studies, the housing prices in the HMA anticipate the housing price development elsewhere in Finland. The data for the housing price development in the HMA region is described by the price index of old dwellings. The empirical research part of the study is based on the OLS time series regression analysis, and the examined time period is from Q1 1990 to Q4 2019.
According to the results, the GDP, the building cost index, and OMX Helsinki variables exhibit statistically significant and positive co-movements with the housing price development of the HMA, as expected based on the previous literature. Moreover, the results show that the interest rate exhibits a statistically significant and negative movement with housing price development of the HMA. Yet, it can be argued whether the result is in fact as significant as the results show since the interest rate decreases throughout the observed time period. Household debt variable exhibit positive, yet, insignificant movement in regard to the housing price development of the HMA. The finding is in accordance with the previous studies, as the housing prices rise, the housing loans tend to increase. The movements of the unemployment rate and the CPI, on the other hand, are statistically insignificant, yet, negative. The negative sign of the coefficient of the unemployment rate is per the findings of the previous studies, yet, the result of the CPI is unexpected as the housing price fluctuations are typically included in the inflation measuring indices.
The purpose of this study is to examine the movements between the key macroeconomic variables, i.e., the building cost index, the GDP, interest rate, the CPI, household debt, OMX Helsinki, and unemployment rate, and the housing price development in the Helsinki Metropolitan area, also referred as the HMA. The selected region is of particular interest as it is the capital region of Finland that comprises the majority of the economic activity of the country. Also, according to the previous studies, the housing prices in the HMA anticipate the housing price development elsewhere in Finland. The data for the housing price development in the HMA region is described by the price index of old dwellings. The empirical research part of the study is based on the OLS time series regression analysis, and the examined time period is from Q1 1990 to Q4 2019.
According to the results, the GDP, the building cost index, and OMX Helsinki variables exhibit statistically significant and positive co-movements with the housing price development of the HMA, as expected based on the previous literature. Moreover, the results show that the interest rate exhibits a statistically significant and negative movement with housing price development of the HMA. Yet, it can be argued whether the result is in fact as significant as the results show since the interest rate decreases throughout the observed time period. Household debt variable exhibit positive, yet, insignificant movement in regard to the housing price development of the HMA. The finding is in accordance with the previous studies, as the housing prices rise, the housing loans tend to increase. The movements of the unemployment rate and the CPI, on the other hand, are statistically insignificant, yet, negative. The negative sign of the coefficient of the unemployment rate is per the findings of the previous studies, yet, the result of the CPI is unexpected as the housing price fluctuations are typically included in the inflation measuring indices.