An applied study on the relationship between inflation and housing prices in Turkiye

In recent times, the preference for real estate investments in Türkiye as a hedge against rising inflation has increased housing prices and heightened interest in this subject. Therefore, this study analyzes the impact of inflation on the rise in housing prices in Türkiye from June 2011 to October 2023 using unit root, cointegration, and causality tests based on Fourier functions, which allow for better modeling of structural breaks. According to the results of the Fourier unit root test, both series are stationary at the first order. The results of the Fourier cointegration test conducted after the unit root test indicate that the series are cointegrated in the long run, either without structural breaks or under structural breaks. According to the cointegration results, when structural breaks are neglected, an average 1% increase in the inflation rate causes approximately a 2.2% increase in housing prices in the long term; when structural breaks are included, it causes approximately a 3.9% increase. According to the results of the Fourier causality test, which determines the direction of causality between the series, there is a bidirectional causality relationship from inflation to housing prices and from housing prices to inflation. The significant impact of inflation on housing prices indicates that asset prices are sensitive to inflation. This finding supports the Fisher Hypothesis, which suggests that nominal assets move in parallel with changes in the inflation rate.