Abstract
SummaryIn light of the strong increase of house prices in Switzerland in the 2000s and early 2010s, we analyze the effects of mortgage rate shocks, changes in housing demand & supply and business cycle conditions on house prices for the time period 1982–2013. We study intertemporal effects by employing Bayesian timevarying coefficients vector autoregressions (TVC-BVAR), regional effects by using regional BVARs and heterogeneity in housing markets by looking at housing segments. 50 % of house price variations can be explained by housing demand & supply. The response of house prices to mortgage rate shocks weakened after the 1990s real estate crisis and remained constant thereafter. However, owneroccupied apartment prices became again more sensitive to mortgage rate shocks during the recent house price boom. Regional effects are especially prevalent for regions Zurich and Geneva.
Highlights
Residential house prices have displayed a rapid growth in the late 2000s and early 2010s and start to resemble the development they went through in the late 1980s and early 1990s when the exaggerated inflation of residential prices ended in a bust of the housing market
An important question when dealing with a booming residential housing market is to determine to which extent the current price movements can be explained by the development of fundamentals, if reactions to changes of these fundamentals are different this time, if regional effects are prevalent and if effects differ between housing segments
We studied the importance of determinants of changes in house prices for Switzerland over time as well as across housing segments and regions
Summary
Residential house prices have displayed a rapid growth in the late 2000s and early 2010s and start to resemble the development they went through in the late 1980s and early 1990s when the exaggerated inflation of residential prices ended in a bust of the housing market. An important question when dealing with a booming residential housing market is to determine to which extent the current price movements can be explained by the development of fundamentals, if reactions to changes of these fundamentals are different this time, if regional effects are prevalent and if effects differ between housing segments. A number of historical events and policy regimes such as the real estate and banking crisis as well as housing construction subsidies in the 1990s, Basel I and Basel II, the introduction of free labour movement with the European Union or different monetary policy environments might have changed the interplay of fundamentals and house prices over time. The tendency of institutional investors to invest in apartment buildings rather than single family houses and the objective to dampen urban sprawl might lead to a different reaction of housing market segments to fundamentals. The house price dynamics could be heterogeneous across Switzerland
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