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This bachelor thesis analyses housing price imbalances in Lithuania by estimating fundamental housing prices and identifying housing demand and supply shifters and their effect on price changes. Housing price misalignments are estimated using different statistical and econometric methods. Price to rent and price to income ratios are calculated and compared to their long-term averages and model-based trends. Nominal and real house price departures from long-term tendencies are measured as deviations from Hodrick-Prescott filtered trend. Disequilibrium model for housing is estimated and used to identify supply and demand shifters and their effect on housing price changes. This model is also employed in estimating fundamental house prices and house price deviations from these fundamentals. All of the above-mentioned methods indicate housing price overvaluation at the time of real estate market boom in 2006-2008, but show differing results during recent years. Price to rent and price to income ratios indicate housing price undervaluation as gaps from their long-term averages in year 2020 were negative. Housing price deviations from Hodrick-Prescott filtered trend and disequilibrium model based fundamental values were positive and, therefore, indicate price overvaluation. Based on the disequilibrium model results, main factors contributing to house price growth during the boom years were high flow of housing credit, high interest rates on business loans, growth of monthly net wages and positive expectations. The effect of these factors on house price growth in recent years was still positive, although much smaller. Other factors, such as rising construction input prices, urbanization and remittances also had an influence on recent housing price growth. |
