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A novel housing price misalignment indicator for Germany

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  • Hertrich, Markus

Abstract

From 2014 until present, housing prices in Germany have been rising faster than consumer prices in all quarters except one, raising concerns about an excessive over-heating of the housing market. To assess the vulnerability of the German housing market to a future realignment of prices or even a housing bust, this paper develops a housing price misalignment indicator that is composed of seven indicators, which are commonly associated with the fundamental value of residential property. An empirical application to the most recent data suggests that the German housing market exhibits an overvaluation of approximately 11%, where interest rate risk and a relatively advanced stage of the housing cycle are identified as the main factors fueling these imbalances, while a rather solid debt-servicing capacity mitigates these imbalances since end-2009.

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  • Hertrich, Markus, 2019. "A novel housing price misalignment indicator for Germany," Discussion Papers 31/2019, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:312019
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    More about this item

    Keywords

    composite indicator; fundamental value; housing market; imbalances; loose monetary policy; price misalignment;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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