Purpose
– This paper aims to investigate the characteristics of house price dynamics for a sample of 16 emerging economies from Asia and Central and Eastern Europe over the period of 1995-2011.
Design/methodology/approach
– Linking housing valuations to a set of conventional fundamental determinants – relative to both the supply and the demand side of the market, institutional factors and other asset prices – and modelling short-term price dynamics – which reflect gradual adjustment to underlying fundamentals –conclusions about the existence and the basic nature of house price overvaluation (undervaluation) are drawn.
Findings
– Overall, it was found that actual house prices in the sample of emerging economies are not overly disconnected from fundamentals. Rather, they tend to reflect a somewhat slow adjustment to shocks to the latter. Moreover, the evidence that housing valuations may be driven by overly optimistic (or pessimistic) expectations is, in general, weak.
Research limitations/implications
– Residential property prices used in the empirical analysis have many limitations: while some series are derived using a hedonic pricing method, others are based on floor area prices collected by national authorities; while some countries publish house prices in national currency per-square metre (or per apartment or per dwelling), others calculate an index number scaled to some base year; while some countries publish statistics for the whole national territory, others produce data only for the capital city or for the largest cities in the country; data from national sources refer to different types of residential property; finally, available time series are relatively short, which may adversely affect the robustness of estimation results.
Practical implications
– The decomposition suggested in the paper has important implications: it would be paramount, in fact, for policymakers to implement market-specific diagnoses, and to find the right policy instruments that can ideally distinguish between the two underlying components driving house price short-run dynamics.
Originality/value
– There is a very small body of empirical literature on housing market developments in emerging economies, especially if focussed on the comparisons between the actual dynamics of housing valuations and the equilibrium ones.