 Are house prices overvalued in Spain? A regional approachLaura Álvarez-Román and Miguel Garcia-Posada Economic Modelling, 2021, vol. 99, issue C Abstract: The collapse of the Spanish housing market during the global financial crisis highlighted the dire consequences of house price overvaluation on the real economy and the banking sector. In this paper we evaluate whether real house prices in Spain are justified by their long-run fundamentals, such as per capita real income, unemployment rate and population density. We account for heterogeneous provincial developments by using a regional dataset with an extended time span. We show that house prices were overvalued in most Spanish provinces in 2007, at the peak of the housing sector expansion, but there was substantial regional heterogeneity. By contrast, we find evidence that real house prices have been undervalued in most provinces in recent years. As overvaluation is mostly explained by high household leverage and the business cycle, it should be addressed with macro- and micro-prudential regulation of the banking system to prevent excessive credit growth. Keywords: House prices; Overvaluation; Regional analysis; Fundamentals; Cointegration (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:99:y:2021:i:c:s0264999321000882 DOI: 10.1016/j.econmod.2021.105499 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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