REAL ESTATE MARKET AT A CROSSROAD - ERA OF AFFORDABLE HOUSING IS GONE

Abstract

Within a broad discussion on property price formation and property market specifics this paper aims to investigate the relationship between property price trends and number of transactions occurred on housing market. Specifically, we test if housing transaction volumes and rents are good predictors of housing prices and discuss causalities and differences in this relationship on the sales and rental property markets. We bring evidence from selected European property markets about the relationship between property price trend and number of transactions occurring on this market. We argue that increased number of transactions is predictive of increase in property price, but prices tend to be rigid in the opposite (downward) direction. Thus, cooling down of demand for properties may rather decrease number of transactions than push down property prices. This appealing result may bring light into understanding why property prices appreciate across time and countries.