Residential Property Prices in Central, Eastern and Southeastern European Countries: The Role of Fundamentals and Transition-Specific Factors

Focus on European Economic Integration Q2/13

25 Pages Posted: 4 Aug 2013

See all articles by Duy Huynh-Olesen

Duy Huynh-Olesen

European Union - European Commission

Katharina Steiner

Oesterreichsiche Nationalbank (OeNB)

Antje Hildebrandt

Bank of Finland - Institute for Economies in Transition (BOFIT)

Karin Wagner

Oesterreichische Nationalbank

Date Written: June 2, 2013

Abstract

The large movements in residential property prices in emerging markets observed over the past decade have raised interest in housing market developments. Within a cointegration framework applied to an unbalanced panel, we assess the relationship between residential property price developments, economic fundamentals and transition-specific factors in Central, Eastern and Southeastern European (CESEE) EU countries from 1999 to 2011. Our results show that demand-side fundamentals (disposable income, population, interest rates) and transition-specific factors related to housing demand (such as funding through remittances and credit growth) as well as construction costs on the supply side have been particularly important in residential property price movements. Nevertheless, these factors cannot fully explain residential property price movements, i.e. we find evidence that house prices moved above the level indicated by those factors in the years preceding the crisis. The sharp correction of residential property prices that took place following the outbreak of the financial crisis reversed these overshoots and brought house prices back to – and in some countries even below – the level indicated by the explanatory factors. This suggests that residential property prices are likely to rebound somewhat when economic conditions improve.

Keywords: housing markets, residential property prices, Central, Eastern and Southeastern Europe, cointegration framework

JEL Classification: C23, P20, R3

Suggested Citation

Huynh-Olesen, Duy and Steiner, Katharina and Hildebrandt, Antje and Wagner, Karin, Residential Property Prices in Central, Eastern and Southeastern European Countries: The Role of Fundamentals and Transition-Specific Factors (June 2, 2013). Focus on European Economic Integration Q2/13, Available at SSRN: https://ssrn.com/abstract=2305111

Duy Huynh-Olesen

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Katharina Steiner (Contact Author)

Oesterreichsiche Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna, A-1011
Austria

Antje Hildebrandt

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Helsinki 00101
Finland

Karin Wagner

Oesterreichische Nationalbank ( email )

Otto-Wagner Platz 3
POB 61
Vienna 1011
Austria

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