Mortgage Credit and House Price Nexus: Evidence from Kenya

Abstract

The purpose of this study was to examine the effect of mortgage credits on house prices in Kenya. Using correlational research design, the study employed a time series secondary data set for 2004 Q1 to 2017 Q4. This study found out that in the long-run, the mortgage loan (ß₃ = 0.133144, p=0.0) has a positive and significant effect on residential house prices in Kenya. 1% increase in mortgage credit will cause a 0.13% increase in residential house prices. This study further established that any deviation from the long-run equilibrium is corrected at a speed of 40% in the next period. Therefore, the government should focus on policies that increase house supply, while to investors, the speed of adjustment does not seem to encourage arbitrage profit.