Modelling house price dynamics in Greece

Dimitrios Karamanis, Dimitrios Louzis, Evangelia Papapetrou and Anastasia Theofilakou
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Dimitrios Karamanis: Bank of Greece and University of Piraeus
Evangelia Papapetrou: Bank of Greece and Kapodistrian University of Athens
Anastasia Theofilakou: Bank of Greece

No 365, Working Papers from Bank of Greece

Abstract: This paper studies the long-run dynamics of real house prices in Greece and their structural drivers. We develop a Bayesian VAR model with time-varying unconditional means that allows to decompose real house prices into a slow-moving structural trend and a transitory cyclical component. The proposed empirical framework accounts for structural changes in the housing market and episodes of heightened macroeconomic volatility. Applied to Greece over 2002-2025, it identifies a pronounced and persistent upward shift in the long run house price trend from 2017 onward. Historical decomposition of the structural shocks attributes this shift mainly to self-reinforcing house price dynamics, but also to the joint effect of strong demand and constrained supply in the housing market. Allowing for time variation in the long run equilibrium of house prices yields a more appropriate assessment of potential housing market imbalances compared with a constant steady state benchmark.

Keywords: House prices; Bayesian methods; time-varying trend; structural shocks; Greece; housing market (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 R21 R31 (search for similar items in EconPapers)
Pages: 27
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:bog:wpaper:365

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