House prices and real interest rates in Spain

Juan Ayuso (), Roberto Blanco and Fernando Restoy ()
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Juan Ayuso: Banco de España
Fernando Restoy: Banco de España

No 608, Occasional Papers from Banco de España

Abstract: This paper analyses the contribution of interest rates to explain recent house price developments in Spain trying to reconcile different pieces of evidence. On the one hand, empirical evidence supports the view that interest rates are a key variable to explain house price developments. As a matter of fact, using simple asset pricing relations recent changes in house prices could be fully explained by movements in ex-post real interest rates. However, more refined asset pricing models show that the changes in the discount factor cannot fully explain the recent course of house prices in Spain. To resolve this puzzle we provide evidence that shows that the actual real cost of financing might have decreased significantly less than what the course of ex-post real rates would suggest.

Keywords: house prices; real interest rates; intertemporal marginal rate of substitution; stochastic discount factor (search for similar items in EconPapers)
JEL-codes: E43 G12 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2006-12
New Economics Papers: this item is included in nep-eec, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:0608

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