Macro and micro drivers of house price dynamics: An application to Dutch data

What is the role of micro and macro factors in determining house prices? We address this question empirically by analysing survey data on housing and mortgages from the DNB Household Survey for the period 1993–2009. We focus on the determinants of house owners’ subjective assessment of the value of their house. We highlight three main findings. First, subjective house prices are strongly related to household-specific and house-specific factors, including year of construction, cohort, education level, income and wealth. Financing conditions – in particular the presence of a mortgage as well as the mortgage type, and the mortgage rate – play an important role. Second, we find that macro variables such as the long-term interest rate also influence to an important extent how households value their home. Third, there is evidence of “well behaved” dynamics of subjective house prices, both in terms of persistence and in terms of mean reversion, indicating that house prices tend to converge to their long run equilibrium value. Finally, our findings support a certain degree of heterogeneity and segmentation in subjective house prices, especially along the dimensions of geographical region and degree of urbanization, funding conditions, and income expectations.

Key words : House prices, survey data, panel analysis.

JEL Codes : D14, E21, G11.

Working paper no. 288