House Price Comovements in the Eurozone Economies

Abstract

The house price boom in major industrialized countries since the early 1990s has been unprecedented. Co-movement is a key feature of it and it has been attributed by scholars to synchronization of monetary policy, financial liberalization, integration of international financial markets, as well as global business cycle linkages. In this paper we focus on seven European countries, all members of the EMU, and ask the question if, the apparent co movement of the housing prices in the seven major euro zone economies implies convergence of their housing markets. Using monthly data from DSI Statistical Bases for 1990(1)-2009(4), we concentrate on the impact of the adoption of the common currency on real house prices movements. We conduct the analysis using country-specific macroeconomic variables and then extend it by adding foreign-specific macro variables to each country's model. The empirical analysis includes cointegration analysis and VAR specifications. Our findings suggest that the movement of the housing prices of the euro zone countries apart from the well known fundamentals of GDP, interest rates and stock returns is also based on a number of idiosyncratic and structural factors like demographics, the tax system and government intervention which determine the duration and the strength of the housing cycles in each country. Furthermore, it seems that the degree of convergence underlying housing prices co movement is limited given the diversities in living standards, regulation of property markets, government intervention and attitudes to residential housing.

The Effects of National Fundamental Factors on Regional House Prices: A Factor-Augmented VAR Analysis

“…They find that the movement in house prices is mainly driven by the specific regional factors (e.g., Watson 2005, 2011;Kallberg et al 2014;etc.). In the Eurozone economies, Merikas et al (2012) use a cointegration approach and a VAR system to examine house price co-movement They provide strong evidence of the importance of local factors (especially the interest rate) on the co-movement of house prices. Taking into account the substantial impacts of house price movements on mortgage values, substantial research has focused on the role of house prices in both the amplification and the propagation of shocks to economic activities (e.g., Iacoviello 2005;Hwang and Quigley 2006;Goodhart and Hofmann 2008;etc.…”

Adopting the Euro will Cause an Increase in Prices: A Study on Inflationary Processes in Euro Area Member States

“…Hence, a wide stream of cheap capital started to flow into the countryit is estimated that nearly 70% of the value of the loans granted came from foreign capital (García-Cintado et al, 2016). Obviously, there is nothing wrong about that, provided that an appropriate lending policy is observed, whichunfortunatelywas not the case in Spain (Merikas et al, 2012). A considerable part of the banking sector was not subject to regulation by the national financial supervision system (particularly savings banks, the so-called Cajas de Ahorros), the weight of which accounted for approx.…”

Do House Prices in Turkey Follow Euro Area Trends?: Regime Switching Approach

“…Considering the consequence of housing market for macroeconomy in many developed countries, there are some papers that investigate cross-border house prices movements (Hiebert & Roma, 2010;Merikas, Merika, Laopodis & Triantafyllou, 2012;Yunus, 2015). If there is a convergence and co-movement between house prices in different countries and house prices are highly correlated across borders, this would make a common monetary policy feasible.…”