Assessing real estate prices in Slovakia - a structural approach

Martin Cesnak and Ján Klacso

No WP 3/2021, Working and Discussion Papers from Research Department, National Bank of Slovakia

Abstract: In this paper, we apply the borrowing capacity approach and the intrinsic value approach to assess property prices in Slovakia. We estimate the maximum attainable house price for a given household. It means that we apply downpayment, DSTI or DTI parameters in line with the macroprudential limits implemented by the NBS. We consider the possible top-up in the form of a consumer loan for households not having enough own capital. Finally, we make use of an internal database of NBS of individual retail loan data that gives us a better picture of the average income of borrowers. Results based on the SBC approach point to a possible overvaluation during the pre-crisis period in 2007 and 2008. After the crisis, lowering interest rates and increasing income led to a robust increase of affordability. Since 2014, the implementation of borrower-based measures decreased the affordability, at least for households with not enough own capital. Based on the results, borrower-based measures could under some circumstances ease the upward pressure on house prices even in an environment of historically low interest rates, unemployment and increasing income.

JEL-codes: E37 G12 G18 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2021-06
New Economics Papers: this item is included in nep-isf, nep-mac, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:svk:wpaper:1080

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