This study investigates dynamic spillover effects between sectoral REITs (Residential, Retail and Office), GDP growth and mortgage rates from 1998 to 2024, testing explicit hypotheses about transmission direction, timing, and intensity across different economic conditions.
The study applies TVP-VAR with R2 decomposition, incorporating average spillover values, the Total Connectedness Index, network analysis and dynamic pairwise spillovers to decompose transmission into contemporaneous and lagged components across economic regimes.
All three real estate sectors act as net transmitters of shocks to GDP and mortgage rates, with Retail emerging as the dominant transmitter, followed by Residential and Office, while GDP and mortgage rates act predominantly as net receivers. REIT-to-GDP spillovers are primarily lagged, while within-sector spillovers are overwhelmingly contemporaneous. Retail drives short-run contemporaneous transmission, while Office emerges as the key lagged transmitter through employment and corporate investment channels. Connectedness intensifies sharply during the GFC and COVID-19, confirming state-dependent spillover dynamics. These findings validate the Wealth Effect hypothesis and Credit Channel theories.
Retail REIT conditions serve as early indicators of short-term macroeconomic stress, while Office REIT dynamics signal longer-term economic transitions. Financial structures preserving household equity alongside stricter lending standards during booms could reduce shock propagation during downturns.
This study advances the literature on wealth effects, credit transmission, and financial stability by demonstrating that real estate-macro relationships are dynamic rather than static, distinguishing between contemporaneous and lagged channels and identifying regime-dependent shifts in spillover direction.
