MACRO SHOCKS AND HOUSE PRICES IN SOUTH AFRICA

We examine the economic sources underlying the comovement of real house prices in South Africa. We use quarterly provincial-level data from 1974:Q1 to 2011:Q4. The results indicate that recent (2001-2011) fluctuations in house prices were mainly driven by a national component. However, historical movements in real estate prices appear to be a local phenomenon. The results also show that macro shocks are important sources of house price fluctuations, with portfolio and monetary policy shocks playing greater roles. An historical decomposition confirms the primary role of portfolio and monetary policy shocks in driving house price dynamics over the sample period, while aggregate supply shocks are of limited influence. We conclude that comovement in real house prices is due to the combined effects of favorable and unfavorable structural shocks emanating from different sectors of the South African economy.