Long run apartment price dynamics in Swedish and German cities

Abstract

PurposeThis study examines the long term effects of macroeconomic fundamentals on apartment price dynamics in major metropolitan areas in Sweden and Germany.Design/methodology/approachThe main approach is panel cointegration analysis that allows to overcome certain data restrictions such as spatial heterogeneity, cross-sectional dependence, and non-stationary, but cointegrated data. The Swedish dataset includes three cities over a period of 23 years, while the German dataset includes seven cities for 29 years. Analysis of apartment price dynamics include population, disposable income, mortgage interest rate, and apartment stock as underlying macroeconomic variables in the model.FindingsThe empirical results indicate that apartment prices react more strongly on changes in fundamental factors in major Swedish cities than in German ones despite quite similar development of these macroeconomic variables in the long run in both countries. On one hand, overreactions in apartment price dynamics might be considered as the evidence of the price bubble building in Sweden. On the other hand, these two countries differ in institutional arrangements of the housing markets, and these differences might contribute to the size of apartment price elasticities from changes in fundamentals. These arrangements include various banking sector policies, such as mortgage financing and valuation approaches, as well as different government regulations of the housing market as, for example, rent control.Originality/valueIn distinction to the previous studies carried out on Swedish and German data for single-family houses, this study focuses on the apartment segment of the market and examines apartment price elasticities from a long term perspective. In addition, the results from this study highlight the differences between the two countries at the city level in an integrated long run equilibrium framework.

The dynamic effect of macroeconomic factors on housing prices: Evidence from South Africa

“…This was observed by [ 11 ], who’s vector autoregression model showed a strong and negative causal relationship between real mortgage interest rate and real house prices in Sweden. Similar estimation results were obtained by [ 33 ] in 3 major cities (Stockholm, Gothenburg, and Malmo) in Sweden where a one percent decrease in mortgage interest rate was associated with a 0.456 percent increase in house prices. Using a vector error correction model approach to examine house prices in Australia, Canada and New Zealand [ 34 ], observed a high and significant effect of the real mortgage rate on house prices across the three countries, where for instance, in Australia, a 1 percentage point increase in the interest rate is associated with a 5 to 9 percent fall in house prices.…”

Supply, Demand and Asymmetric Adjustment of House Prices in Poland

“…There is evidence that housing demand is driven by population growth dynamics (Borowiecki, 2009;Capozza, et al, 2002;Plakandaras et al, 2015) and migrations (Hanet al, 2018;Laurinavičius, et al, 2021;Taltavull de La Paz & White, 2012). Other demand factors include households' incomes (Abelson, et al, 2005;Mikhed & Zemčík, 2009;Oikarinen, et al, 2018) and employment rate (Engerstam, 2021;Mikhed & Zemčík, 2009;Mohan, et al, 2019;Plakandaras et al, 2015). Furthermore, both mortgage costs (Bork & Møller, 2015;Cuestas, 2017;Jarociński & Smets, 2008;Mian & Sufi, 2011;Mikhed & Zemčík, 2009;Oikarinen, 2009;Tsatsaronis & Zhu, 2004)., and inflation rate (Alpha Kabine, 2023;Bagliano & Morana, 2012;Mohan et al, 2019;Plakandaras et al, 2015) have a significant impact on investment demand.…”

Discovering the determinants of house prices dynamics in Poland using Bayesian model averaging

“…The economic drivers of house price house dynamics include disposable incomes (Abelson et al, 2005;Hamid et al, 2022;Mikhed & Zemčík, 2009;Oikarinen et al, 2018), gross domestic product (Alpha Kabine, 2022;Jarociński & Smets, 2008;Nyakabawo et al, 2015) or industrial production (Bork & Møller, 2015;Rapach & Strauss, 2009). Furthermore, according to various economic research, the unemployment rate negatively affects house prices (Engerstam, 2021;Mikhed & Zemčík, 2009;Mohan et al, 2019a;Plakandaras et al, 2015). In general, the evidence from developed economies reveals that house prices rise in expansion and fall in recessions (Hirata et al, 2013).…”