AN ANALYSIS OF MACROECONOMIC DETERMINANTS OF HOUSE PRICE VOLATILITY IN NAMIBIA

Katrina Namutenya Kamati

Working Papers from African Economic Research Consortium

Abstract: The housing sector plays a significant role in the economy however, house prices are presumed to be more volatile than other goods and services, because of their high demand. The aim of this study was to conduct an empirical analysis of the determinants of house price volatility in Namibia. Moreover, the direction of causality between house price volatility and the macroeconomic determinants was examined. The ARCH and GARCH models together with the VAR/VECM approaches were used to analyse quarterly data from 2007 quarter 1 to 2017 quarter 2. The findings show that house prices in Namibia are volatile and the volatility is highly persistent. A long run relationship was established between house price volatility and the macroeconomic determinants. It was further established that volatility itself, GDP and mortgage loans significantly determine house price volatility. In addition, a unidirectional causality from GDP and mortgage loans to house price volatility was found. The IRF analysis showed that shocks to the selected macroeconomic variables, except the prime lending rate magnify volatility. It was also confirmed by the VDC analysis that mortgage loans and current volatility are the most significant variables that explain variation in house price volatility. Policy makers should therefore monitor macroeconomic factors closely and ensure that the economy is growing to mitigate the issues of house price volatility.

Date: 2020-09-23
Note: African Economic Research Consortium
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