A back-of-the-envelope analysis of house prices: Czech Republic, 2013-2021

Roman Sustek

No 2120, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: Building on Garriga, Kydland, and Sustek (2017), a simple practical method for quantitative analysis of house prices is proposed. Similar to consumer theory, housing demand is approximately decomposed into changes in income and a relative price. The latter includes implicit costs of mortgage finance, determined by monetary and macroprudential policies and future income growth and inflation expectations. To demonstrate the method, I apply it to the 63% increase in real house prices in Czechia, 2013-2021. The income effect accounts for 32% of the increase, implicit mortgage costs for another 20%. Most of the latter hinges on income growth expectations, reflecting the robust 2013-2020 economic recovery.

Keywords: House prices; decomposition; affordability; mortgage costs; monetary and macroprudential policy (search for similar items in EconPapers)
JEL-codes: E52 G21 G59 R21 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2021-10
New Economics Papers: this item is included in nep-ure
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