Abstract
This paper investigates the house price cycle in 17 major cities in Poland, analysing separately prices of newly constructed housing and prices in the existing stock. We apply the Andre, Gupta and Mwamba (2019) framework and test the deepness and steepness of the cycles. Deepness concerns the relative magnitude of peaks and downturns, while steepness determines, how fast peaks or downturns are reached. When at least one of those measures is not symmetric, there is asymmetry in the cycle. We apply the triples test and the entropy test and find little evidence for asymmetry, mostly only in small cities. This seems to be intriguing, because usually there are asymmetries, for example slow price increases end in sudden drops. The explanation for the smooth cycle in the Polish housing market are a still not satisfied demand for housing and continuously growing wages. Banks issued mortgages only to the more affluent people, which were able to pay back the mortgage. Additionally, two housing subsidy schemes helped to keep house prices stable, when the situation in the global economy worsened, which might have led to price drops.
Highlights
In this article we analyse the house price cycle in the 17 largest Polish cities during 2007–2018 to demonstrate how the market evolved and to determine why the Global Financial Crisis did not lead to a crisis on the Polish real estate market, but only induced a gradual decline in house prices
We focus on two measures of the house price cycle asymmetry that we borrow from Andre, Gupta and Mwamba (2019): Deepness represents differences in the magnitude of upswings and downturns
We evaluate the short-term and medium-term changes in house prices and the asymmetry of the house price cycle, analysing the steepness and deepness of asymmetric price adjustment
Summary
In this article we analyse the house price cycle in the 17 largest Polish cities during 2007–2018 to demonstrate how the market evolved and to determine why the Global Financial Crisis did not lead to a crisis on the Polish real estate market, but only induced a gradual decline in house prices. If tensions have built up over a long time and demand drops suddenly, the following decline in prices can lead to an economic and financial crisis can emerge It is crucial for housing policy, economic policy and monetary policy, to understand whether the house price cycles are symmetric or not, because the proper means to counteract a potential crisis can be taken. The analysis of housing cycles shows that sudden and prolonged declines in prices are very problematic for the economy They can appear after a long period of slow price growth, and after a very fast increase in house prices. Negative deepness was observed in Oklahoma, where a very long and slow price increase was followed by a significant price decline from around 1983 until 1989 Such a scenario can be treated as relatively calm, the prolonged decline in prices had most likely a negative effect on housing developers.
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