There exists a voluminous literature which examines house price diffusions across space and quality tiers. Numerous observers have pointed out that housing price dynamics can also be analysed in terms of house price diffusions across different housing sub‐markets (e.g. landed vs non‐landed housing). However, there has been no research to document these cyclical interactions. The purpose of this paper is to remedy this research gap by offering evidence of cyclical dynamics between different housing sub‐markets for the case of Malaysia.
The dynamics between house prices of non‐landed housing (condominium) and landed housing (terrace, semi‐detached and detached housing sub‐markets) are analysed. Band‐pass filters are first used to extract the cyclical components from the four house price series. Next, interactions between house price cycles are documented using cross‐correlation analysis, Granger‐causality tests and impulse response functions. Finally, the out‐of‐sample forecasting performance of the respective house price series is examined.
The author finds that condominium price cycles are exogenous in that they lead the price cycles in other housing sub‐markets by one‐ to two‐quarters. Second, condominium price cycles drive price cycles in the terrace and detached sub‐markets. Third, cycles in condominium prices are able to predict house price cycles in other sub‐markets with a high degree of precision.
This is the first known study that establishes stylised facts of lead‐lag relationships between house price cycles in different housing sub‐markets. The findings have several practical implications for housing investors who intend to optimise investment decisions on housing purchases.
