Measuring fundamental housing prices in the Baltic States: empirical approach

This paper develops a comprehensive framework for assessing housing price misalignments from the fundamental prices in the Baltic States. For this purpose several statistical indicators (price-to-rent ratio, price-to-income ratio, price deviations from Hodrick-Prescott filtered trend) are used together with econometric models. Such models include reduced form equilibrium price regressions estimated for individual countries and for the panel as well as supply-demand system for each of the Baltic countries. Statistical indicators are employed in combination with the model estimates to arrive to clearer conclusions about residential real estate price misalignments. This paper contributes to the literature by filling the gap of monitoring housing market developments consistently in the Baltics and developing a framework that can potentially be used to monitor price misalignments in the residential real estate markets of other countries.