Assessing House Prices with Prudential and Valuation Measures

Michal Andrle and Miroslav Plašil

No 2019/059, IMF Working Papers from International Monetary Fund

Abstract: In this paper we provide tools for assessing the house prices and housing valuation. We develop two approaches: (i) borrowing capacity approach, and (ii) intrinsic value approach. The borrowing capacity of households, together with their down payment, implies how much housing they can attain. In the intrinsic value approach, property value is viewed as a discounted present value of adjusted net rental income. Our approach does not involve a complex econometric model and only widely available data are used. The proposed indicators can guide households, financial markets and macroprudential authorities in their understanding of house prices development. To illustrate the concepts, we analyze the housing prices in the Czech Republic and assess the degree of market over-and undervaluation.

Keywords: WP; price; opportunity cost; down payment; intrinsic value; sensitivity analysis; house prices; borrowing capacity; present value; financial stability; household income; mortgage interest rates; money terms; rental income; cost of capital; price map; house prices in the Czech Republic; forecast point of view; apartment price; observed price; Housing prices; Mortgages; Personal income; Housing; Asset valuation (search for similar items in EconPapers)
Pages: 42
Date: 2019-03-18
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (6)

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