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Residential Property Prices in Central, Eastern and Southeastern European Countries

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Author Info

  • Antje Hildebrandt

    ()
    (Oesterreichische Nationalbank, Foreign Research Division)

  • Duy T. Huynh-Olesen

    ()
    (European Central Bank, EU Countries Division)

  • Katharina Steiner

    ()
    (Oesterreichische Nationalbank, Foreign Research Division)

  • Karin Wagner

    ()
    (Oesterreichische Nationalbank, Economic Analysis Division)

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    Abstract

    The large movements in residential property prices in emerging markets observed over the past decade have raised interest in housing market developments. Within a cointegration framework applied to an unbalanced panel, we assess the relationship between residential property price developments, economic fundamentals and transition-specific factors in Central, Eastern and Southeastern European (CESEE) EU countries from 1999 to 2011.2 Our results show that demand-side fundamentals (disposable income, population, interest rates) and transition-specific factors related to housing demand (such as funding through remittances and credit growth) as well as construction costs on the supply side have been particularly important in residential property price movements. Nevertheless, these factors cannot fully explain residential property price movements, i.e. we find evidence that house prices moved above the level indicated by those factors in the years preceding the crisis. The sharp correction of residential property prices that took place following the outbreak of the financial crisis reversed these overshoots and brought house prices back to – and in some countries even below – the level indicated by the explanatory factors. This suggests that residential property prices are likely to rebound somewhat when economic conditions improve.

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    Bibliographic Info

    Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

    Volume (Year): (2013)
    Issue (Month): 2 ()
    Pages: 52-76

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    Handle: RePEc:onb:oenbfi:y:2013:i:2:b:1

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    Related research

    Keywords: Housing markets; residential property prices; Central; Eastern and Southeastern Europe; cointegration framework;

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    References

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    1. Bal�zs �gert & Dubravko Mihaljek, 2007. "Determinants of House Prices in Central and Eastern Europe," Comparative Economic Studies, Palgrave Macmillan, vol. 49(3), pages 367-388, September.
    2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    3. Dan Andrews, 2010. "Real House Prices in OECD Countries: The Role of Demand Shocks and Structural and Policy Factors," OECD Economics Department Working Papers 831, OECD Publishing.
    4. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
    5. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Alessio Ciarlone, 2012. "House price cycles in emerging economies," Temi di discussione (Economic working papers) 863, Bank of Italy, Economic Research and International Relations Area.
    7. Antje Hildebrandt & Reiner Martin & Katharina Steiner & Karin Wagner, 2012. "Residential Property Markets in CESEE EU Member States," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 8-30.
    8. Luis M. Cubeddu & Camilo Ernesto Tovar Mora & Evridiki Tsounta, 2012. "Latin America," IMF Working Papers 12/193, International Monetary Fund.
    9. Mitsuhiro Fukao & Masaharu Hanazaki, 1986. "Internationalisation of Financial Markets: Some Implications for Macroeconomic Policy and for the Allocation of Capital," OECD Economics Department Working Papers 37, OECD Publishing.
    10. Paul van den Noord, 2003. "Tax Incentives and House Price Volatility in the Euro Area: Theory and Evidence," OECD Economics Department Working Papers 356, OECD Publishing.
    11. Jerome Vandenbussche & Ursula Vogel & Enrica Detragiache, 2012. "Macroprudential Policies and Housing Price," IMF Working Papers 12/303, International Monetary Fund.
    12. Konstantin A. Kholodilin & Jan-Oliver Menz & Boriss Siliverstovs, 2010. "What Drives Housing Prices Down? Evidence from an International Panel," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(1), pages 59-76, February.
    13. Elizabeth Steiner, 2010. "Estimating a Stock-Flow Model for the Swiss Housing Market," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 146(III), pages 601-627, September.
    14. Samya Beidas-Strom & Weicheng Lian & Ashwaq Maseeh, 2009. "The Housing Cycle in Emerging Middle Eastern Economies and its Macroeconomic Policy Implications," IMF Working Papers 09/288, International Monetary Fund.
    15. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    16. Eloisa T Glindro & Tientip Subhanij & Jessica Szeto & Haibin Zhu, 2008. "Determinants of house prices in nine Asia-Pacific economies," BIS Working Papers 263, Bank for International Settlements.
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