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Macro and micro drivers of house price dynamics: An application to Dutch data

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Author Info

  • Gabriele Galati
  • Federica Teppa
  • Rob Alessie

Abstract

What is the role of micro and macro factors in determining house prices? We address this question empirically by analysing survey data on housing and mortgages from the DNB Household Survey for the period 1993-2009. We focus on the determinants of house owners' subjective assessment of the value of their house. We highlight three main findings. First, subjective house prices are strongly related to household-specific and house-specific factors, including year of construction, cohort, education level, income and wealth. Financing conditions - in particular the presence of a mortgage as well as the mortgage type, and the mortgage rate - play an important role. Second, we find that macro variables such as the long-term interest rate also influence to an important extent how households value their home. Third, there is evidence of "well behaved" dynamics of subjective house prices, both in terms of persistence and in terms of mean reversion, indicating that house prices tend to converge to their long run equilibrium value. Finally, our findings support a certain degree of heterogeneity and segmentation in subjective house prices, especially along the dimensions of geographical region and degree of urbanization, funding conditions, and income expectations.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 288.

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Date of creation: Mar 2011
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Handle: RePEc:dnb:dnbwpp:288

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Web page: http://www.dnb.nl/en/
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Keywords: House prices; survey data; panel analysis;

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  1. Oriol Aspachs-Bracons & Pau Rabanal, 2010. "The drivers of housing cycles in Spain," SERIEs, Spanish Economic Association, vol. 1(1), pages 101-130, March.
  2. Luci Ellis & Laura Berger-Thomson, 2004. "Housing Construction Cycles and Interest Rates," Econometric Society 2004 Australasian Meetings 335, Econometric Society.
  3. Climent Quintana & Marco González, 2008. "The reliability of self-reported home values in a developing country context," Working Papers. Serie AD 2008-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Darracq Pariès, Matthieu & Notarpietro, Alessandro, 2008. "Monetary policy and housing prices in an estimated DSGE for the US and the euro area," Working Paper Series 0972, European Central Bank.
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Cited by:
  1. Carin van der Cruijsen & David-Jan Jansen & Maarten van Rooij, 2014. "The rose-colored glasses of homeowners," DNB Working Papers 421, Netherlands Central Bank, Research Department.

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