This paper examines asymmetries in the impact of monetary policy on the middle segment of
the South African housing market from 1966:M2 to 2011:M12. We use Markov-switching vector
autoregressive (MS-VAR) model in which parameters change according to the phase of the housing cycle.
The results suggest that monetary policy is not neutral as house price growth decreases substantially with
a contractionary monetary policy. We find that the impact of monetary policy is larger in bear regime than
in bull regime; indicating the role of information asymmetry in reinforcing the financial constraint of
economic agents. As expected, monetary policy reaction to a positive house price shock is found to be
stronger in the bull regime. This suggests that central banks react more in bull regime in order to prevent
potential crisis related to the subsequent bust in house prices bubbles which are more prominent in bull
markets. These results substantiate important asymmetries in the dynamics of house prices in relation to
monetary policy, vindicating the advantages of generating regime dependent impulse response functions.