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Assessing house price sustainability

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  • Miroslav Plasil
  • Michal Andrle

Abstract

This article sets out to present the CNB's approach to determining fundamental house prices. House price sustainability is assessed by calculating two indicators. The first is macroprudential in nature and measures attainable property price levels compatible with safe debt financing. The second indicator is based on asset pricing theory and assesses the benefits of property ownership relative to long-term renting and alternative investments. Both indicators show that residential property in the Czech Republic was overvalued by 10%-15% in the second half of 2018.

Suggested Citation

  • Miroslav Plasil & Michal Andrle, 2019. "Assessing house price sustainability," Occasional Publications - Chapters in Edited Volumes,, Czech National Bank.
    • Handle: RePEc:cnb:ocpubc:tafs2019/1
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    File URL: https://www.cnb.cz/export/sites/cnb/en/financial-stability/.galleries/thematic-articles-on-financial-stability/tafs_2019_01_en.pdf
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    References listed on IDEAS

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    1. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    2. Nicolas Philiponnet & Alessandro Turrini, 2017. "Assessing House Price Developments in the EU," European Economy - Discussion Papers 048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Ryan Fox & Peter Tulip, 2014. "Is Housing Overvalued?," RBA Research Discussion Papers rdp2014-06, Reserve Bank of Australia.
    4. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-164, April.
    5. Ms. Deniz O Igan & Mr. Prakash Loungani, 2012. "Global Housing Cycles," IMF Working Papers 2012/217, International Monetary Fund.
    6. Hana Hejlova & Libor Holub & Miroslav Plasil, 2018. "The introduction and calibration of macroprudential tools targeted at residential real estate exposures in the Czech Republic," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2017/2018, chapter 0, pages 126-135, Czech National Bank.
    7. Matteo Iacoviello, 2002. "House Prices and Business Cycles in Europe: a VAR Analysis," Boston College Working Papers in Economics 540, Boston College Department of Economics.
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    Cited by:

    1. Hana Hejlová & Libor Holub & Miroslav Plašil, . "Calibration of Borrower-based Macroprudential Measures for Mortgage Exposures: Rigorous Approach and Its Application to the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 0.
    2. Roman Sustek, 2022. "A Back-of-the-Envelope Analysis of House Prices: Czech Republic, 2013-2021," CERGE-EI Working Papers wp737, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    3. Roman Sustek, 2021. "A back-of-the-envelope analysis of house prices: Czech Republic, 2013-2021," Discussion Papers 2120, Centre for Macroeconomics (CFM).
    4. Hana Hejlová & Libor Holub & Miroslav Plašil, 2021. "Calibration of Borrower-based Macroprudential Measures for Mortgage Exposures: Rigorous Approach and Its Application to the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2021(3), pages 316-335.

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