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Housing Markets in Central and Eastern Europe: Is There a Bubble in the Czech Republic?

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  • Petr Zemcik

Abstract

Real estate prices more than doubled in many countries of Central and Eastern Europe from 2003 to 2008. In this paper, I provide the first assessment of whether housing prices in this region correspond to rents, i.e. to cash-flows related to an apartment purchase. State-of-theart panel data stationarity and Granger causality techniques are employed to test the implications of the standard present-value model using regional data from the Czech Republic. Apartment prices both in this country overall and in its capital are only slightly overvalued. In addition, changes in prices are helpful in predicting changes in rents and vice versa.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp390.

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Date of creation: Sep 2009
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Handle: RePEc:cer:papers:wp390

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Keywords: Central and Eastern Europe; Czech Republic; panel data; unit root; bubble; house prices; rents.;

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  1. Pesaran, M. Hashem, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," IZA Discussion Papers 1240, Institute for the Study of Labor (IZA).
  2. Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
  3. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
  4. 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.
  5. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
  6. Stephen Malpezzi, 1998. "A Simple Error Correction Model of House Prices," Wisconsin-Madison CULER working papers 98-11, University of Wisconsin Center for Urban Land Economic Research.
  7. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  8. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  9. Joshua Gallin, 2006. "The Long-Run Relationship between House Prices and Income: Evidence from Local Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(3), pages 417-438, 09.
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