Evaluation of the property price development by a composite index

Mikuláš Cár, Roman Vrbovský, National bank of Slovakia, Slovak Republic

Pages: 26 – 39

Abstract

The gradual revival of the Slovak housing market from the mid-2014 was reflected in the dynamic growth of the average housing price in during 2016 and early 2017, which led to a discussion on a possibility of inflating the real estate bubble. Simple comparisons of house price developments and the development of selected correlated indicators have intuitively excluded the possibility of inflating the real estate bubble. The main counter-argument was the fact that the almost five-year stagnation of housing prices since 2010 was accompanied by a relative improvement in the income situation of households. Therefore, the faster growth of housing prices than the growth of household income in recent quarters can be seen as a compensation for the stagnation of housing prices in the recent past. Intuitive reflections also confirmed a more sophisticated approach to assessing the adequacy of housing price developments using a composite index. According to different approaches, these indices have been rising over the recent quarters, but have not yet reached values that could indicate a greater risk for the current housing price developments, also from a financial stability perspective.

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