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House prices and real interest rates in Spain

Author

Listed:
  • 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.

Suggested Citation

  • Juan Ayuso & Roberto Blanco & Fernando Restoy, 2006. "House prices and real interest rates in Spain," Occasional Papers 0608, Banco de España.
    • Handle: RePEc:bde:opaper:0608
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/06/Fic/do0608e.pdf
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    References listed on IDEAS

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    Cited by:

    1. Eirini Andriopoulou & Panos Tsakloglou, 2015. "Once Poor, Always Poor? Do Initial Conditions Matter? Evidence from the ECHP," Research on Economic Inequality, in: Measurement of Poverty, Deprivation, and Economic Mobility, volume 23, pages 23-70, Emerald Group Publishing Limited.
    2. José Francisco Bellod Redondo, 2011. "Detección de burbujas inmobiliarias: el caso español," Contribuciones a la Economía, Servicios Académicos Intercontinentales SL, issue 2011-05, May.
    3. Hiebert, Paul & Sydow, Matthias, 2011. "What drives returns to euro area housing? Evidence from a dynamic dividend–discount model," Journal of Urban Economics, Elsevier, vol. 70(2), pages 88-98.
    4. Nannan Yuan & Shigeyuki Hamori & Wang Chen, 2014. "House Prices and Stock Prices: Evidence from a Dynamic Heterogeneous Panel in China," Discussion Papers 1428, Graduate School of Economics, Kobe University.
    5. Hiebert, Paul & Sydow, Matthias, 2009. "What drives returns to euro area housing? Evidence from a dynamic dividend-discount model," Working Paper Series 1019, European Central Bank.

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    More about this item

    Keywords

    house prices; real interest rates; intertemporal marginal rate of substitution; stochastic discount factor;
    All these keywords.

    JEL classification:

    • 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

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