An empirical study for the role of the mortgage in the house prices, real estate market and economic growth

Abstract

In recent years, many countries have shown interest in searching for non-oil sources of income. One of these sources is the bank credit. Bank credit is important to economic growth due to new globalization trends. Saudi Arabia is one of the countries to embark on bank credit. In its Vision 2030, the Kingdom of Saudi Arabia has shifted fundamentally in aligning its interests in non-oil production to promote sustainable development in all sectors. One of the most important tributaries of this production is the real estate market. In 2012, the Saudi Arabian government officially introduced the mortgage system as a new tool to promote economic growth. Therefore, this study focuses on Saudi Arabia as a special case to analyse the impact of mortgages on house prices and its role in solving the problem of continuous high-price houses in Saudi Arabia by using Autoregressive distributed lag model (ARDL) regression using quarterly data from 2005 to 2019. Another purpose of this research is to analyse the impact of mortgage on the growth of the real estate market in Saudi Arabia. For this purpose, Fully Modified Ordinary Least Squares (FMOLS) estimator and annual data from 1970 and 2019 are employed. Finally, this study aims to determine the extent of mortgage involvement in increasing the economic growth rate in oil-producing countries. The Generalized Method of Moments (GMM) is used to analyse panel data of 46 oil-producing countries including Saudi Arabia from 2005 to 2019. The data was collected from numerous sources, such as the General Authority for Statistics (GASTAT), The Saudi Central Bank (SAMA), the World Bank, and the IMF. The outcomes revealed the following: 1) Mortgage has a significant positive impact on house prices in the short and long terms. Furthermore, Saudi employment has a significant positive effect on the prices of houses. However, the opposite result is for CPI affects , which significantly negatively impacts house prices; 2) there is a positive relationship between mortgages and the Saudi’s real estate GDP in the short and the long run. Moreover, employment and investment positively impact GDP in the short and long run; and 3) Mortgage negatively impacts economic growth, while investment and CPI positively impact economic growth. This study fills the existing gaps by investigating housing problem in Saudi Arabia and the effect of the mortgage system on oil-producing countries by analysing variables that are directly and indirectly related to mortgages. Future studies may consider using other variables to examine their impact on the real estate market and economic growth if it is related to any other variables in direct or indirect ways.