Housing Markets in Central and Eastern Europe: Is There a Bubble in the Czech Republic?

Abstract

Real estate prices more than doubled in many countries of Central and Eastern Europe from 2003 to 2008. In this paper, I provide the first assessment of whether housing prices in this region correspond to rents, i.e. to cash-flows related to an apartment purchase. State-of-the art panel data stationarity and Granger causality techniques are employed to test the implications of the standard present-value model using regional data from the Czech Republic. Apartment prices both in this country overall and in its capital are only slightly overvalued. In addition, changes in prices are helpful in predicting changes in rents and vice versa.

Keywords: Central and Eastern Europe, Czech Republic, panel data, unit root, bubble, house prices, rents

JEL Classification: G12, R21, R31, C33