Academic journal article Journal of Economics and Economic Education Research

Housing Market Dynamics: New Insights from the Indicator Approach

Academic journal article Journal of Economics and Economic Education Research

Housing Market Dynamics: New Insights from the Indicator Approach

Article excerpt

INTRODUCTION

The real estate market in general and the housing market in particular, has long been acknowledged as a crucial source of risk to financial stability and economic growth. The importance of housing is not limited to investment opportunity but it is necessary to strengthen homeownership as well as community development. Rossi and Weber (1996) claimed that homeownership is positive for owners as they are more likely to have greater self-satisfaction and confidence. Hence, they are likely to contribute to the development of the community. Rohe and Stewart (1996) also supported homeowners being more active in civic affairs and maintaining their properties to a higher standard. These activities, in turn, are thought to lead to more stable and greater social and economic development. Therefore, encouraging more homeownership in the country is beneficial for the society.

In accordance with Wong et al. (2015), Malaysia is well off as an emerging country, making significant headway toward a globalized and liberalized world; however, its economy is unsurprisingly open to historic external influences and hence conveys immense risk and uncertainty to the domestic market. In Borneo, the real estate market has been regarded as an asset class for investment. Nevertheless, the nation does not have many appropriate hedging instruments to account for its own risk (Jin & Grissom, 2008). Therefore, housing prices have been studied from many viewpoints, such as demand, supply, financial institutions, policy makers, and related professionals.

Notwithstanding the repeating trend of boom and bust, every crisis has an exclusive countenance and something new can always be learned by precisely delving into the problems. Hence, housing market participants are highly prone to risks as real estate market as a whole usually display a cyclical nature. For that reason, an appropriate forecasting tool is required to monitor the fluctuations in the housing cycle.

Burns and Mitchell (1946) found that business cycles are fluctuations that occur in the economic activity of all nations. Practically, business cycles and housing cycles are similar concepts in that an interaction between the demand and supply causes vacancy rates and rents and housing inventories to rise and fall over and over again (Chinloy, 1996). To a degree, we can apply the identical procedures employed in the business cycle to the housing market. Numerous empirical research studies have been conducted to construct the real estate cycle in various countries using a variety of methodologies [see, for example, Borowiecki (2009); Capozza et al. (2002); Egert & Mihaljek (2007); Puah et al. (2015)]. However, the state-based housing cycle has rarely been examined even though the national housing cycle absorbs the impact of the state's development in housing activity. As a result, we deliberated a nation's need for a state-based analysis of the housing cycle to serve as a complement to the national housing analysis. In addition, the state-based housing cycle remains an important platform for state-level housing authorities to understand the state housing market and policy planning.

In keeping with the aim of building a state-level housing cycle, we took the state of Sarawak located in the northern territory of Borneo Island as a case study. The rationale was that the Sarawak housing market has been growing at an erratic pace in which the fundamental forces of demand and supply are no longer capable of predicting the changing market. Furthermore, the emergence of several giant housing development projects has bought an upsurge in cities such as Kuching, Miri, and Sibu. The housing price index (HPI) for Sarawak rose from 152.8 in 2010 to 160.1 in 2011 and eventually reached 214.6 by the end of 2014. Though housing prices have risen significantly, especially in some cities in Sarawak, the property overhang and affordable housing remain a hard-core issue for the state housing authorities. …

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