Sentimental Shocks and House Prices

Dimitris Anastasiou, Panayotis Kapopoulos () and Kalliopi-Maria Zekente ()
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Panayotis Kapopoulos: Alpha Bank
Kalliopi-Maria Zekente: Alpha Bank

The Journal of Real Estate Finance and Economics, 2023, vol. 67, issue 4, No 3, 627-655

Abstract: Abstract We investigate the impact of sentimental shocks on house price fluctuations in the Euro area. To this end, we isolate and measure non-fundamental-based sentimental shocks by employing survey-based indicators that proxy four key types of expectations of housing market participants. The novelty of our study is that specific sentimental shocks are identified through four uncertainty transmission channels in the real estate market (i.e., the precautionary savings channel, the credit supply channel, the credit demand, and the inflationary channel). We provide strong evidence that sentimental shocks drive fluctuations in house prices even in the absence of any changes in aggregate fundamentals. Finally, we find that these results are more pronounced in the peripheral Euro area countries. The finding that the real estate market is also governed by irrational behavior implies that both governments and policymakers should consider sentimental shocks when they form their real estate market policies or take actions to stabilize and improve the proper function of the European housing market.

Keywords: House Prices; Real Estate Market; Sentimental Shocks; Macroeconomic Fundamentals; Uncertainty Transmission Channels (search for similar items in EconPapers)
JEL-codes: C13 D84 E3 R21 R3 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11146-021-09871-z

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