The real estate industry was severely affected by the COVID-19 in both the residential and the commercial sectors due to travel and site-visit limitations, rent sustainability issues and a decrease or higher uncertainty about disposable income. During the lockdown, houses became more important and were analysed in depth. It can be assumed that a new demand could emerge after this crisis making households looking for more comfortable houses since this asset will increase its importance for living and working. Similarly, the commercial real estate sector will change due to lower rent sustainability. However, the main expected change is related to the building type and the standards requested by tenants in the new economic environment.
Purpose -The purpose of this paper is to develop a comprehensive framework for assessing housing price misalignments from the fundamental prices in the Baltic States.Design/methodology/approach -This paper uses several statistical indicators (price-to-rent ratio, priceto-income ratio, price deviations from Hodrick-Prescott filtered trend) together with econometric panel error correction model. The model takes advantage of the reduced form specification of equilibrium prices. Statistical indicators are employed in combination with the model estimates to arrive to clearer conclusions about residential real estate price misalignments.Findings -The results show that using the framework developed in this paper one could have successfully identified the overheating in the residential real estate markets that was happening in [2005][2006][2007][2008]. The estimates also capture the price correction overshooting that happened in the Baltic States after the recession of 2009. Since then, housing prices have been converging to their equilibrium values.Research limitations/implications -The result implies that no immediate restrictive policy action is required. Looking further, the framework developed here can be used to supplement macroprudential monitoring, risk identification and analysis. It should also help fine-tune various policy instruments that have an impact on the real estate markets.The limitations of the framework presented in this paper suggest at least two directions in which the research could be improved and extended. First, it would be useful to extend the current modelling setup to VECM framework for the better understanding of error correction dynamics. Second, better time series would potentially improve the quality of the results as the series used in this paper in some cases had to be extrapolated or interpolated (or were not sufficiently long enough).Originality/value -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..
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.