Misalignments in house prices and economic growth in Europe

Juan Cuestas, Merike Kukk and Natalia Levenko

No 2021/07, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: In this paper we investigate house price misalignments and how they affect the real economy. We estimate the long-term relationship between house prices and the fundamentals that determine long-term house prices for a panel of European countries with dynamic OLS, using data from 2005-2018. We find that income has been the main driver of fundamental house prices in all countries, while the supply of dwellings has calmed the rise in house prices in some of them. We calculate house price misalignments, which are deviations of house prices from the fundamental value, and we employ them in the growth model. The results of the growth regression indicate that house price imbalances amplify business cycles in the short term, but in the long term house price overvaluations slow economic growth down. The findings imply that it is crucial to take measures to stabilise housing cycles.

Keywords: housing markets; fundamental house price; misalignments; imbalances; overvaluation; economic growth (search for similar items in EconPapers)
JEL-codes: E21 E44 G01 R21 R31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2021
New Economics Papers: this item is included in nep-cwa, nep-eec, nep-mac, nep-tra and nep-ure
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Related works:
Journal Article: Misalignments in house prices and economic growth in Europe (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:jau:wpaper:2021/07

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