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Asymmetric Nonlinear Impact of Oil Prices and Inflation on Residential Property Prices: a Case of US, UK and Canada

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Abstract

This paper examines the nonlinear impact of oil prices and inflation on residential prices in the US, the UK and Canada using quarterly data from 1975 to 2017. The study uses nonlinear autoregressive distributed lag (NARDL) bounds testing approach that allows possible asymmetric effects in both short- and long-run. Our results highlight that oil prices, interest and inflation rates and income have asymmetric relationship with residential prices in US, UK and Canada; however, the extent and magnitude of this relationship varies. Long run coefficients of Inflation rate highlights significance for residential prices in all three economies i.e. US, UK and Canada. For international oil prices however, the asymmetric effect is more pronounced in US as compared with UK and Canada. In case of US, long-run asymmetric relationship of residential prices with inflation and gross domestic product (GDP) per capita is also witnessed however, interest rate seems to influence residential prices in both UK and Canada. Our paper has implications for the investors in residential housing markets and government authorities regulating housing sectors.

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Notes

  1. In recent years, housing prices witnessed an increasing trend in US for example, US S&P national home price index increased by 5% (3.3% in real terms) highlighting an increase of 0.7%. Similarly, according to Federal Housing Finance Agency (FHFA), seasonally adjusted purchase-only U.S. housing price index escalated by 5.9% (4.6% in real terms). Demand for new houses and construction activity is also increasing, for example during 2016, demand for new houses increased by 17.9% (132,000 units) whereas existing home sales increased by 5.1% (National Association of Realtors). Similarly, for construction activity, new privately owned housing units increased by 10.1%. The completion of housing construction projects highlighted an increase of 8.9% (U.S. Census Bureau).

  2. During 2016, Canada’s housing market witnessed an increase of 11.42% (10.21% inflation-adjusted), the highest annual housing price growth in recent years.

  3. UK Buy-to-Let stamp duty surcharges experienced a 5.3% surge in average housing prices in 2016 highlighting an increase of 4.26% than 2015.

  4. See Shin et al. (2014) for an extensive derivation of the model.

  5. http://www.worldstopexports.com/crude-oil-imports-by-country

  6. See more details, see Long et al. (2012)

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Authors and Affiliations

  1. Informetrics Research Group, Ton Duc Thang University, Ho Chi Minh City, Vietnam

    Mobeen Ur Rehman

  2. Faculty of Social Sciences and Humanities, Ton Duc Thang University, Ho Chi Minh City, Vietnam

    Mobeen Ur Rehman

  3. Department of Management Sciences, Bahria University, Islamabad, Pakistan

    Sajid Ali

  4. Montpellier Business School, Montpellier, France

    Syed Jawad Hussain Shahzad

  5. South Ural State University, 76, Lenin prospekt, Chelyabinsk, Russian Federation

    Syed Jawad Hussain Shahzad

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  1. Mobeen Ur Rehman
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  3. Syed Jawad Hussain Shahzad
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Correspondence to Mobeen Ur Rehman.

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Rehman, M.U., Ali, S. & Shahzad, S.J.H. Asymmetric Nonlinear Impact of Oil Prices and Inflation on Residential Property Prices: a Case of US, UK and Canada. J Real Estate Finan Econ 61, 39–54 (2020). https://doi.org/10.1007/s11146-019-09706-y

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