A comprehensive method for house price sustainability assessment in the Czech Republic

Abstract

The article describes approach proposed for the house price equilibrium assessment in the Czech Republic. It first explains why it is necessary to use multiple models simultaneously to correctly assess house price sustainability. It goes on to describe individual models proposed to estimate house price misalignment in the Czech Republic. Results given by these individual models are consonant in identifying periods of over-and undervaluation of house prices but slightly differ in the amplitude of the gaps. A method for aggregating the estimates produced by those approaches is then presented. It works on the premise that more correlated estimates may be evidence of a strong signal, while less correlated estimates may, on the other hand, bring additional information to the house price assessment. By using two sets of weights, it presents an interval of supposed under-or overvaluation of house prices. This method indicates that Czech house prices were roughly at their equilibrium level in mid-2014 following an extended period of slight undervaluation since the mid-2009. It also proves robust to the length of the sample used.