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Prof. Roman Sustek

Queen Mary, University of London, United Kingdom

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Authors: Haroon Mumtaz and Roman Sustek

Abstract: What drives house prices? Applying a parsimonious model to house prices in 12 countries since 1950, we show that expectations about future fundamentals were the key driver behind major house price movements. In the model, house prices depend on the expected future housing stock, population, income per capita, and age distribution. The growth rates of these fundamentals contain persistent components, estimated from the data, affecting expectations. The model accounts for the spectacular boom and bust in Japan, the boom starting in many countries in early 1990s, and the house price cycles in Switzerland. A decomposition into the contributing factors is carried out.

JEL Classification: E20, G50, J11, R21, C11
Keywords: House prices, international, growth shocks, fundamentals, demographics

Full Text: Global house prices since 1950