House Price Dynamics in Sweden : Vector error-correction model

Sammanfattning: Movements in house prices can have effects on individuals, financial markets, and the whole economy. After the rapid increase in house prices worldwide since the mid-1990s and after the financial crisis in 2008, many studies have investigated house price dynamics. Furthermore, real house prices in Sweden have increased by more than 200 % since the mid-1990s up until today. This study takes a closer look at the fundamental determinants of house prices to investigate both the long- and short-run dynamics of Swedish house prices. The method of use includes a vector error-correction model, which exposes both long- and short-run dynamics of house prices. The long-run results show that Swedish house prices are currently not overvalued. Furthermore, in the short-run, the results suggest that house prices adjust to their equilibrium level with 7,9 % in each quarter.