THE RIPPLE EFFECTS OF HOUSING PRICE AND TRADING VOLUME CHANGES ACROSS SINGAPORE HOUSING SUBMARKETS

Abstract

This study is undertaken to look more closely at the dynamics of Singapore residential housing market with a focus on the interaction between private and public subsectors. A study on the impact of shocks transmitted through Singapore’s housing market through submarkets with regards to price effects and trading volume is conducted. The main objective is to find out if a ripple effect can be found. Augmented Dickey Fuller and Johansen cointegration tests respectively reveal non-stationarity and contemporaneous long-run relationships within the indices, which lead to the deployment of Vector Error Correction Model (VECM) for further analyses. A vector error correction model (VECM) is formulated to explain the dynamic relationships between residential prices, trading volume and other market fundamental variables. The empirical results support the proposed model in that market fundamentals, prices and trading volume are significant variables in explaining the change in prices and trading volume. The model highlights the role of wealth shocks to the housing market and the resulting ripple effect in prices and trading volume, working through the housing submarkets. The study highlights that a positive shock to the wealth of owners will increase the prices of homes in the housing market. In addition, a price increase in the public submarket will increase the price of the private submarket. Lastly, increasing the trading volume for lower subsector housing will increase the trading volume for higher subsector housing.