Don't Look Up: House Prices in Emerging Europe

IMF Working Papers, December 2, 2022

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Investigates how housing prices respond to economic, financial and demographic conditions in emerging markets in Europe.
Uses quarterly data covering 10 countries over the period 1998–2022.
Implements a panel quantile regression approach to obtain a granular analysis of real estate markets.

Economic, financial and demographic factors explain the changes in real house prices in emerging Europe.
Income growth has the most significant impact on real house prices.
Quantile regression estimations show that income growth matters more for higher housing prices than those at the lower quantiles of the property market.
An increase in short-term or long-term interest rates has a price-dampening impact, indicating that a higher cost of borrowing is associated with lower real house prices.
These results indicate that the downturn in house prices could deepen with the looming economic recession and soaring interest rates.

Monitoring income dynamics is critical for assessing pressures in higher segments of the housing market.
Interest-rate developments (both short-term and long-term) are key levers affecting house-price dynamics; rising rates are likely to exert downward pressure on real house prices.
Anticipated economic recession and rising borrowing costs could amplify the housing-market downturn, suggesting a need for policy preparedness to cushion potential negative spillovers to financial stability and household balance sheets.

Serhan Cevik and Sadhna Naik, "Don't Look Up: House Prices in Emerging Europe", IMF Working Papers 2022, 236 (December 2, 2022).