An unobserved component analysis of Malaysia’s house prices
International Journal of Housing Markets and Analysis
ISSN: 1753-8270
Article publication date: 1 February 2018
Issue publication date: 11 June 2019
Abstract
Purpose
This paper aims to investigate Malaysia’s house prices behaviour by decomposing trend, cycle and stochastic component.
Design/methodology/approach
The authors perform an unobserved component model of a structural time series and Markov switching model that covers the period 1999Q1 to 2015Q4.
Findings
The results reveal that the variation in house price in Malaysia is best explained by its trend level, with a small role played by the cycle component; this implies the potential for gaining returns on investments in property by investors and households. The results also show that Malaysia’s HPI cycle is between 8 and 17 years which, in relative terms, is twice the length of the growth cycle and the business cycle in the economy. Meanwhile, the overall movement of HPI is forecast to have a marginal price increase up to 2028Q2.
Originality/value
As house prices remained elevated during the year, the house price dynamic is pivotal for understanding the source of changes in house price. With major findings centred on the relationship between house prices and macroeconomic as well as policy variables, little attention has been paid to composing the trend, cycle and seasonal pattern from the house price index, thus understanding the behaviour of house prices’ unobserved components.
Keywords
Acknowledgements
The authors thank an anonymous referee of the journal for their comments and suggestions. This research is funded by University Sains Islam Malaysia Research Grant (PPP-FEM-13615-00G00/10). They also thank the participants of the Malaysian Finance Association Conference 2016 for their comments, which improved this manuscript.
Citation
Mohd Daud, S.N. and Marzuki, A. (2020), "An unobserved component analysis of Malaysia’s house prices", International Journal of Housing Markets and Analysis, Vol. 12 No. 3, pp. 353-376. https://doi.org/10.1108/IJHMA-03-2017-0024
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited