Browsing by Author "Franken, Marika"

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    Determinants of the South African residential real estate grown cycle
    (Stellenbosch : Stellenbosch University, 2007-12) Franken, Marika; Bloom, Jonathan Z.; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management.
    ENGLISH ABSTRACT: As from the beginning of 2000 house prices have seen four consecutive years of sustained price increases for the first time since 1984. These price increases enhanced activity in and redirected investment focus to the residential property market. It appears that the boom in house prices was preceded and supported by a number of economic variables, such as growth in disposable income, greater affordability, low inflation and low interest rates. Based on the above, the primary objective of this study is to identify through regression analysis the leading indicators of the house price growth cycle. The results indicate that one-quarter lagged growth in house prices, onequarter lagged interest rate growth, one-quarter lagged growth in the rand/dollar exchange rate and growth in the one-quarter lagged construction cost could be used to predict the growth in house prices. The analysis is extended to include a regression analysis of the upswing and downswing phases of the house price growth cycle, which is intended to identify potential leading indicators of an upswing and downswing in the property cycle. The results for the upswing phase indicate that one-quarter lagged growth in house prices, one-quarter lagged interest rates, one-quarter lagged growth in household consumption, one-quarter lagged growth in JSE ALSI and one-quarter lagged growth in the rand/dollar exchange rate may be used to predict the growth during the upswing phase of house prices. The results for the downswing phase indicate that one-quarter lagged growth in house prices, one-quarter lagged growth in interest rates, one-quarter lagged growth in household saving and one-quarter lagged growth in construction cost could be used to predict the growth of house prices during the downswing phase. No indicator series could consistently predict the direction of growth in house prices. To test which economic variables appear most frequently as indicators of growth in house prices a second regression analysis is performed for the cycle and the upswing and the downswing phases using a longer predictive period. The initial regression analysis is based on data from 1974 to 2000 and the second regression analysis is performed on data from 197 4 to 1995 and tested on data from 1996 to 2004. A comparison between the relevant regression analyses performed on the complete house price growth cycle found that only one-quarter lagged growth in house prices is a common variable for the prediction of growth in the complete house price cycle. The regression analysis performed on data from 197 4 to 1995 for the upswing phase produced three models. The regressions have four variables in common; one-quarter lagged growth in house prices, one-quarter lagged growth in building plans passed, one-quarter lagged household savings and one-quarter lagged consumption. The regression is repeated on the downswing phase and a comparison of the results of the regression analysis from 197 4 to 2000 and the regression analysis from 197 4 to 1995 showed that one-quarter lagged growth in house prices, one-quarter lagged growth in interest rates and one-quarter lagged growth in construction costs consistently predicted changes in the growth of house prices during the downswing phase. Only one-quarter lagged growth in house prices are consistently identified as a growth indicator for the complete cycle, upswing phase and downswing phase.