Macroeconomic Theory and The Implication for Real Estate Cycles

1
Oyedele J.B.
Oyedele J.B.
1 Obafemi Awolowo University, Ile-Ife, Osun State, Nigeria

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The paper examines the implication of macroeconomic theory on real estate cycles. Certain macroeconomic factors such as increasing real interest rates, lack of credit availability and increasing product market competition as a result of higher rate of returns in the financial markets tend to dissuade real estate investments while favouring short term investors. It has been established that macroeconomic variables such as nominal interest rates explain almost 60% of the variation in real estate prices. Other macroeconomic variables such as the slope of the term structure, expected and unexpected inflation, industrial production, and the spread between high-grade and low-grade bonds act as a proxy for economic risk factors that are rewarded, ex ante, in the stock market. Hence a good understanding of macroeconomic theory and cyclical movement is a significant factor for efficient portfolio management and the resultant implication on investment decision making.

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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

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Oyedele J.B.. 2019. \u201cMacroeconomic Theory and The Implication for Real Estate Cycles\u201d. Global Journal of Management and Business Research - F: Real estate, Event, Tourism Management & Transporting GJMBR-F Volume 19 (GJMBR Volume 19 Issue F3): .

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Issue Cover
GJMBR Volume 19 Issue F3
Pg. 39- 47
Journal Specifications

Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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GJMBR-F Classification: JEL Code: L85
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v1.2

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December 19, 2019

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English

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The paper examines the implication of macroeconomic theory on real estate cycles. Certain macroeconomic factors such as increasing real interest rates, lack of credit availability and increasing product market competition as a result of higher rate of returns in the financial markets tend to dissuade real estate investments while favouring short term investors. It has been established that macroeconomic variables such as nominal interest rates explain almost 60% of the variation in real estate prices. Other macroeconomic variables such as the slope of the term structure, expected and unexpected inflation, industrial production, and the spread between high-grade and low-grade bonds act as a proxy for economic risk factors that are rewarded, ex ante, in the stock market. Hence a good understanding of macroeconomic theory and cyclical movement is a significant factor for efficient portfolio management and the resultant implication on investment decision making.

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Macroeconomic Theory and The Implication for Real Estate Cycles

Oyedele J.B.
Oyedele J.B. Obafemi Awolowo University, Ile-Ife, Osun State, Nigeria

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