Analysis of the Bulgarian Housing Price Index: Risks, Market Dynamics, and Economic Implications

This paper provides a comprehensive analysis of the Bulgarian Housing Price Index for the period 2005-2024, a timeframe characterised by significant economic transformations and market turbulence. Utilising advanced quantitative risk assessment techniques, including Value-at-Risk and Expected Shortfall, the study evaluates the extreme downside risks associated with housing price fluctuations, particularly focusing on the potential for market corrections and their broader economic impacts. The study’s novelty lies in its specific examination of housing market risks in Bulgaria and its unique methodology for assessing the consequences of extreme price drops. Results reveal that rare but significant price drops pose substantial risks, potentially triggering economic chain reactions, such as reduced consumption, lower construction activity, and rising unemployment. These dynamics increase the risk of recessions, particularly in real estate-dependent economies. While some perspectives may not predict a real estate bubble, the findings suggest that structural factors, such as overinvestment, demographic changes, and global economic shocks, could signal price volatility and a potential bubble. The paper also acknowledges certain limitations, including the scope of data and the complexities of modelling housing market risks. The findings highlight the need for stricter risk management policies, stress testing models, and conservative mortgage lending practices, while regulatory intervention is crucial to mitigate risks and preserve economic stability.