Publication at Faculty of Social Sciences, Faculty of Mathematics and Physics, Centre for Economic Research and Graduate Education |
2011
Abstract
Real estate prices more than doubled in many countries of Central and Eastern Europe from 2003 to 2008. In this paper, I provide one of the first assessments of whether housing prices in this region correspond to rents, i.e. to cash-flows related to an apartment purchase.
State-of-the-art panel data stationarity and Granger causality techniques are employed to test the implications of the standard present value model using regional data from the Czech Republic. Apartment prices are only slightly overvalued.
In addition, changes in prices are helpful in predicting changes in rents and vice versa.