Don’t Look Up: House Prices in Emerging Europe

Abstract This paper investigates how housing prices respond to economic, financial and demographic conditions in emerging markets in Europe. We use quarterly data covering 10 countries over the period 1998–2022 and implement a panel quantile regression approach to obtain a granular analysis of real estate markets. Overall, economic, financial and demographic developments explain real house price growth in emerging Europe, with income growth having the most significant impact. Quantile regression estimations show that income growth matters more for higher quantiles of the property market. We also find that an increase in short-term or long-term interest rates has a price-dampening impact, indicating that a higher cost of borrowing is associated with lower real house price growth. These results indicate that the downturn in house prices could deepen with the looming economic recession and soaring interest rates.