Investigating the dynamics of house prices: an asymmetric analysis of macroeconomic determinants

Abstract

This study investigates whether real house prices in Greece respond asymmetrically to key macroeconomic fundamentals and whether such asymmetries are consistent with downward price rigidity. Motivated by the persistent rise in property prices and its implications for affordability and macro-financial stability, we examine differential effects across expansionary versus contractionary phases and assess the role of major structural disruptions. We model real house prices in Greece as the dependent variable and apply the nonlinear autoregressive distributed lag (NARDL) methodology, decomposing GDP per capita, inflation (CPI) and mortgage interest rates into positive and negative partial sums to estimate asymmetric short- and long-run effects. Regime shifts are explicitly accounted for through an endogenously identified structural break at 2012Q2, aligned with the March 2012 PSI, strengthening inference on cointegration and long-run relationships over an extended, crisis-prone sample. The results confirm cointegration with a significant speed of adjustment and pronounced asymmetries in the transmission of shocks to real house prices. In the long run, lagged GDP per capita is significant. Positive CPI shocks with a one-quarter lag raise prices, while negative shocks are insignificant, consistent with downward price rigidity. Interest-rate hikes depress prices more than cuts support them, and Wald tests indicate that long-run asymmetry operates mainly through the CPI and interest-rate channels. In the short run, positive GDP-per-capita shocks are significant, while negative changes are negligible. Lagged positive CPI changes reduce prices, while negative CPI changes remain insignificant. Interest-rate hikes have more persistent negative effects than the less durable and partly offset response to cuts, with Wald tests confirming short-run asymmetry across all three channels. In the Greek housing market, the long-run equilibrium appears stable; however, the transmission of macroeconomic shocks to real house prices is nonlinear and asymmetric, particularly in the short run. The findings highlight the importance of nonlinear approaches for both economic analysis and policy design. Although the empirical estimates are specific to Greece, the NARDL framework with structural breaks and formal asymmetry testing may also prove useful for analyzing similar housing-market adjustment mechanisms in other euro-area peripheral economies that experienced sovereign-debt, housing-market and banking-system stress, such as Portugal, Spain and Ireland. Results imply that macroprudential policy should be calibrated to asymmetric risks. Authorities can front-load risk containment during boom phases through Loan-to-Value and Debt-to-Income limits, while supervisors can incorporate asymmetric scenarios into stress tests. In Greece, demand-support schemes such as the Golden Visa and “My Home” should be linked to local housing availability and complemented by measures that expand effective supply, including easing permitting delays, mobilizing vacant housing stock, and supporting new housing provision in high-demand areas. Asymmetric house price responses can exacerbate affordability pressures because prices rise quickly in upswings but adjust slowly in downturns. This pattern can widen wealth inequality between owners and non-owners, raise barriers for first-time buyers, and increase household vulnerability when interest rates rise. Recognizing these dynamics supports policies that protect access to housing and reduce boom-driven displacement, especially in urban areas where demand shocks are strongest. This study addresses a specific gap in the Greek housing-price literature by examining whether key macroeconomic determinants affect real house prices asymmetrically in both the short and long run once major structural disruptions are taken into account. It is among the few studies to apply a unified nonlinear NARDL framework with asymmetric effects, an endogenously identified structural break and a long sample covering major economic episodes. To the best of our knowledge, no previous study on Greece combines these features. The findings offer policy-relevant implications for housing policy, monetary policy and macroprudential design under heightened macro-financial risk.