An Alternative Method To Estimate The Housing Price Expectations

Price expectation is one of the factors promoting speculation in housing markets. However, in the literature proxies are often used due to a lack of observations, with interest rates or lagged prices commonly used variables. Expectation is recognized as the determinant factor in explaining the increase of the non-fundamental component of housing prices compared to the more traditional drivers such as population, stock, income, wealth, interest rates and inflation. This paper proposes an alternative method to measure the house price expectations and one that more accurately reflects the market. The analysis utilises a valuation database of about 900,000 records for the Spanish housing market, each record contains information about the price that owners expect to obtain on selling their property. The methodology uses a hedonic model approach to separate that part of the price arising from housing heterogeneity and the general housing prices trend and isolat ing this from the expectations of the housing prices.