The User Cost of Housing in the Baltic States
||The User Cost of Housing in the Baltic States
||23rd Annual European Real Estate Society Conference in Regensburg, Germany
||This paper builds a novel dataset on the real estate markets of the Baltic countries and uses it to derive the user cost of homeownership in the Baltics. The estimates are used to identify periods of residential real estate over- or undervaluation. Three alternative estimates of the user cost of homeowner-ship in the Baltics are computed: one that does not discriminate between the leveraged and unleveraged parts of a house and two that take loan-to-value ratios into account. The approach successfully identifies the overheating that took place in the Baltic real estate markets prior the crisis of 2009 and shows that there is significant upward pressure for the housing prices in the Baltics in the low interest rates environment. The increase in the price-to-rent ratios would be sustainable given the low interest rates environment but could potentially bring harmful volatility when the monetary policy normalizes.
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