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Modelling house price dynamics in Greece

Author

Listed:
  • Dimitrios Karamanis

    (Bank of Greece and University of Piraeus)

  • Dimitrios P. Louzis

    (Bank of Greece)

  • Evangelia Papapetrou

    (Bank of Greece and Kapodistrian University of Athens)

  • Anastasia Theofilakou

    (Bank of Greece)

Abstract

This paper studies the long-run dynamics of real house prices in Greece and their structural drivers. We develop a Bayesian VAR model with time-varying unconditional means that allows to decompose real house prices into a slow-moving structural trend and a transitory cyclical component. The proposed empirical framework accounts for structural changes in the housing market and episodes of heightened macroeconomic volatility. Applied to Greece over 2002-2025, it identifies a pronounced and persistent upward shift in the long run house price trend from 2017 onward. Historical decomposition of the structural shocks attributes this shift mainly to self-reinforcing house price dynamics, but also to the joint effect of strong demand and constrained supply in the housing market. Allowing for time variation in the long run equilibrium of house prices yields a more appropriate assessment of potential housing market imbalances compared with a constant steady state benchmark.

Suggested Citation

  • Dimitrios Karamanis & Dimitrios P. Louzis & Evangelia Papapetrou & Anastasia Theofilakou, 2026. "Modelling house price dynamics in Greece," Working Papers 365, Bank of Greece.
    • Handle: RePEc:bog:wpaper:365
    DOI: 10.52903/wp2026365
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    Keywords

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • 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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