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What Drives House Prices in Europe?

Author

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  • Federica Ciocchetta
  • Elisa Guglielminetti
  • Alessandro Mistretta

Abstract

Boom‐and‐bust cycles in the housing market pose a threat to macroeconomic and financial stability, thus calling for a timely assessment of imbalances. This work sheds light on the drivers of house price dynamics in some euro area economies, investigating the risks of overheating. We show that an Error‐Correction‐Model (ECM) featuring a long‐run relationship between house prices and income and short‐run effects of interest rates and housing supply fits the data well in most cases. We then propose a novel model‐based misalignment indicator and find that extrapolative house price expectations play an important role in the build‐up of speculative bubbles.

Suggested Citation

  • Federica Ciocchetta & Elisa Guglielminetti & Alessandro Mistretta, 2024. "What Drives House Prices in Europe?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 86(5), pages 1089-1121, October.
    • Handle: RePEc:bla:obuest:v:86:y:2024:i:5:p:1089-1121
    DOI: 10.1111/obes.12601
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