Discussion Paper, Turkish Economic Association 2008/8
We discuss issues of real estate price bubble, the extent of wealth effects, affordability, financial deepening and credit market risks. Our simulations indicate that given current wealth levels, cost of credit and maturity, average homes are not affordable by average consumers. The market requires further reduction in the cost of credit and extension of maturity to manage a significant demand shift in the real estate market. We present evidence that Turkeys credit markets are shallow to result in a banking crisis emerging from real estate credits. Finally, we document evidence in favor of the presence of wealth effects on consumption.