Are Swedish houses overpriced?

Abstract

PurposeSwedish house prices have risen rapidly since the mid‐1990s. How can this be explained? Are houses overpriced? In this paper the author tries to answer these questions.Design/methodology/approachThe author estimates an error correction model (ECM), and sees if the model can explain the house price developments.FindingsThe model suggests that increasing household disposable income and falling mortgage rates are the most important factors behind the upswing in prices. There is no evidence of overpricing.Originality/valueCompared to earlier Swedish studies, this study is based on new data and new variables. Furthermore, the estimation period is restricted to the more recent period when Swedish credit markets have been unregulated.