The interaction of actual and fundamental house prices: A general model with an application to Sweden
U. Michael Bergman and
Peter Birch Sørensen
Journal of Housing Economics, 2021, vol. 54, issue C
The paper presents a general method for estimating a country’s level of fundamental house prices and its interaction with actual house prices. We set up a unified empirical model which can be used to analyze the time-series behavior of the fundamental house price and to test various hypotheses regarding its relation to the actual house price. Conditional forecasts from the model allow us to simulate policy experiments. To illustrate how the methods work, we apply it to data for Sweden. We find a tendency for actual house prices to converge on fundamental prices, albeit rather slowly. To achieve a significant fall in actual house prices it is necessary to increase the user cost substantially.
Keywords: Fundamental house prices; house price dynamics; Housing bubbles (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:54:y:2021:i:c:s1051137721000425
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