THE EFFECT OF INTEREST RATE POLICIES OF THE CENTRAL BANK OF THE REPUBLIC OF TURKEY (CBRT) ON HOUSING DEMAND: AN ECONOMETRIC ANALYSIS

Abstract

Interest rate policies have a great role in directing the economy with monetary policy by using the monetary transmission mechanism of the Central Banks. Since there is a transition from the determined policy rates to other market rates, it is extremely important to determine the effects of interest rate policies on prices and real activities. Macroeconomic development in Turkey also affects the real estate sector in general and the housing sector in particular. The fact that these sectors play an important role in the investment decisions of individuals ensures that they remain popular for all segments, regardless of the conjuncture. In this context, there is a direct relationship between the Central Bank's interest rate decisions and housing demand. From this point of view, the aim of the study is to determine the effect of the interest policies implemented by the Central Bank of the Republic of Turkey (CBRT) on the housing demand for the monthly data for the period 2013.01-2022.03. Since house sales statistics are thought to be the most determinant indicator of housing demand in the study, this variable was taken as the dependent variable. The independent variable, the interest rate, has been taken as the CBRT Weighted Average Cost of Funding (WFP), which is the weighted average of the CBRT overnight lending rate and the weekly repo rate, with the thought that the effect of the policy rate on the banks and therefore on the market will be more significant. Real exchange rate, inflation and money supply (M1), which are used as control variables, are included in the study, assuming that they are determinant macroeconomic variables for the Turkish economy. As a result of the cointegration analysis, a long-term relationship has emerged, and at the same time, it has been seen as a result of the error correction model that there is a relationship in the short run. A 1% increase in the weighted average funding rate variable will cause a 13.9% decrease in housing demand. The most influential variables on housing demand are exchange rate, inflation and money supply, respectively. The lowest effect was obtained for the funding interest rate variable. According to impulse response analysis, housing demand responds to shocks arising from the funding rate variable by decreasing. According to the variance decomposition results; While approximately 95% of the change in housing demand is due to its own internal dynamics, the change in interest rate explains only 1% of the change in housing demand.