Housing Price Bubbles and their Determinants in the Czech Republic and its Regions

Michal Hlaváček, Luboš Komárek

This working paper, based on an empirical analysis, discusses factors affecting property prices and tries to identify periods of property price overvaluation by three approaches: using simple ratios related to house prices (price-to-income and price-to-rent), using time series analysis for the Czech Republic as a whole, and using panel regression for the Czech regions. The time series analysis and the simple indicators of housing price sustainability identified overvalued property prices in 2002/2003 and partly also in 2007/2008. According to the time series analysis, however, the size of the housing price overvaluation in 2007/2008 was relatively low, as the rise in property prices in this period was largely explainable by fundamentals. From the regional perspective, there is a higher degree of overvaluation in regions with higher property prices. The exception is Prague, which seems to be a “specific” region.

JEL Codes: R21, R31, C23.

Keywords: Asset price bubbles, Czech Republic and its regions, housing prices, panel regression.

Issued: December 2009

Download: CNB WP No. 12/2009 (pdf, 648 kB)

Published as: Komárek, L. and Hlaváček, M. (2011): Regional Analysis of Housing Price Bubbles and their Determinants in the Czech Republic. Czech Journal of Economic and Finance, 61(1), 67-91.