Bubbles in South African house prices and their impact on consumption

Abstract

This study tests for house price bubbles in the South African housing market using quarterly data from 1969:Q2 to 2009:Q3, based on the unit root test developed by Phillips, Wu, and Yu (2010). The findings indicate house price bubbles in the aggregate, large, medium, and small-middle segments, but not in the luxury and affordable segments. Next, symmetric and asymmetric versions of an Error Correction Model (ECM) are used to investigate the spillover effects from the housing sector onto consumption. Results indicate significant and asymmetric spillovers, with consumption responding significantly to house price deceleration, although there is no evidence of the effect being higher during the bubble period.