https://doi.org/10.52903/wp2026365
MODELLING HOUSE PRICE DYNAMICS IN GREECE
Dimitrios Karamanis
Bank of Greece and University of Piraeus
Dimitrios P. Louzis
Bank of Greece
Evangelia Papapetrou
Bank of Greece and National and Kapodistrian University of Athens
Anastasia Theofilakou
Bank of Greece
ABSTRACT
This paper studies the long-run dynamics of real house prices in Greece and their structural drivers. We develop a Bayesian VAR model with time-varying unconditional means that allows to decompose real house prices into a slow-moving structural trend and a transitory cyclical component. The proposed empirical framework accounts for structural changes in the housing market and episodes of heightened macroeconomic volatility. Applied to Greece over 2002-2025, it identifies a pronounced and persistent upward shift in the long run house price trend from 2017 onward. Historical decomposition of the structural shocks attributes this shift mainly to self-reinforcing house price dynamics, but also to the joint effect of strong demand and constrained supply in the housing market. Allowing for time variation in the long run equilibrium of house prices yields a more appropriate assessment of potential housing market imbalances compared with a constant steady state benchmark.
Keywords: House prices; Bayesian methods; time-varying trend; structural shocks; Greece; housing market
JEL-classifications: C11; C32; E32; R21; R31
Disclaimer: The views expressed are those of the authors and do not necessarily reflect those of their respective institutions. The usual caveat applies.
Correspondence:
Dimitrios Louzis
Economic Analysis and Research Department
Bank of Greece
El. Venizelos 21, 10250 Athens, Greece
Tel.: +30-2103202648
email: dlouzis@bankofgreece.gr