House prices and real interest rates in Spain

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House prices and real interest rates in Spain

Author Info

Juan Ayuso () (Banco de España)
Roberto Blanco () (Banco de España)
Fernando Restoy () (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.

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Publisher Info
Paper provided by Banco de España in its series Banco de España Occasional Papers with number 0608.

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Length: 36 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:bde:opaper:0608

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-03-24 (All new papers)
NEP-EEC-2007-03-24 (European Economics)
NEP-MAC-2007-03-24 (Macroeconomics)
NEP-URE-2007-03-24 (Urban & Real Estate Economics)

References listed on IDEAS
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Other versions:
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