Effects of macroeconomic changes on unsold housing inventory

Residential property as a high-priced investment option is significantly affected by changing economic conditions. Also, unsold apartments exert enormous effects on the success of newly developed cities. This study analyzes the effects of macroeconomic changes on the unsold apartment inventory in Incheon planned as a free economic zone. A VECM designed for the factor analysis of multiple time series data is used. The scope of this study includes the time series data of Incheon’s unsold apartment market from 2001 to 2015 and macroeconomic variables for the same period. The analysis findings indicate the exchange rates, consumer price index and interest rates have greatest effects on Incheon’s unsold apartment inventory in the order named. Planned as an international free economic zone to attract foreign investors, Incheon is significantly affected by exchange rates. The effects of the consumer price index can be explained by the fact that real estate properties function as a hedge against inflation. Particularly, the effects of interest rates are attributable to the investment demand outweighing the owner-occupier demand given the city’s free economic zone initiative. In that the value of Korean won is forecast to rise following the country’s economic rejuvenation, it is necessary to seek some measures to lessen the risks of foregoing investors. Also, it is imperative to closely monitor the US Federal Reserve’s interest rate rises followed by domestic interest rate hikes and fluctuating exchange rates, and to take into account relevant policy measures.