A Study on the Dynamic Effects of Macroeconomic Variables, Housing Market Policy, and Market Sentiment on Apartment Prices: Evidence from Seoul

Abstract

This study investigates the dynamic interactions among macroeconomic variables, housing market policies, and market sentiment and their relationships with apartment prices in Seoul. Using monthly time-series data from July 2011 to December 2025, the analysis draws on the apartment price index provided by the Korea Real Estate Board (REB), the KRIHS Housing Sales Market Sentiment Index, and a continuous Policy Index (POL) constructed to capture the direction and intensity of government housing market interventions. A vector error correction model (VECM) is employed to examine long-run equilibrium relationships and short-run dynamic adjustments. Unlike prior studies that often treat housing market policy as an exogenous shock, this study treats policy as an endogenous variable within the system and incorporates market sentiment as a potential channel through which policy and market conditions are linked. The empirical results provide evidence of long-run relationships among apartment prices, macroeconomic conditions, housing market policy, market sentiment, transaction activity, and housing supply. Rather than estimating a single structural price equation, the analysis focuses on the joint long-run equilibrium relationships among these variables. The findings indicate that market sentiment plays an important role in explaining short-run fluctuations in apartment prices, whereas interest rates have greater explanatory power over longer horizons. Housing market policy also exhibits dynamic interactions with apartment prices, with these relationships operating partly through changes in market sentiment and transaction activity. This study contributes to the literature by incorporating policy-market feedback and market sentiment into an integrated dynamic framework for analyzing housing market fluctuations.