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A back-of-the-envelope analysis of house prices: Czech Republic, 2013-2021

Author

Listed:
  • Roman Sustek

    (Queen Mary University of London
    Centre for Macroeconomics (CFM))

Abstract

Building on Garriga, Kydland, and Sustek (2017), a simple practical method for quantitative analysis of house prices is proposed. Similar to consumer theory, housing demand is approximately decomposed into changes in income and a relative price. The latter includes implicit costs of mortgage finance, determined by monetary and macroprudential policies and future income growth and inflation expectations. To demonstrate the method, I apply it to the 63% increase in real house prices in Czechia, 2013-2021. The income effect accounts for 32% of the increase, implicit mortgage costs for another 20%. Most of the latter hinges on income growth expectations, reflecting the robust 2013-2020 economic recovery.

Suggested Citation

  • Roman Sustek, 2021. "A back-of-the-envelope analysis of house prices: Czech Republic, 2013-2021," Discussion Papers 2120, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2120
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    House prices; decomposition; affordability; mortgage costs; monetary and macroprudential policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G59 - Financial Economics - - Household Finance - - - Other
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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