Stability in the real estate market is an essential aspect of maintaining the stability of the entire economy. Since real estate market experienced price declines or large fluctuations before the financial crisis in 2008 and the prices started to grow rapidly after 2008, the real estate market has been the subject of many studies. Moreover, in Germany the prices of existing real estate increased by 68% at the national level between Q3 2008 and Q4 2021. At the city level the increasing of the prices from the biggest fall in 2008-2010 to 2020 was between 91.2% and 157.1%. This study aims to analyze the impact of fundamental values on house prices in the long- and short-term, to make a forecast for house prices, assess the situation in the real estate market, and then determine the presence of bubbles. The study is conducted at country and city levels. The research on the country level is performed for the period between Q1 2000 and Q1 2022 quarterly. For cities, the period between 1995 and 2020 is taken annually due to data limitations. The fundamental values are Real Construction Cost, Real Disposable Income per capita, Population, Real GDP, and Long-term Interest Rates. Using the Johansen test, Vector Error Correction Model, and Impulse Response Function, long- and short-run relationships between house prices and fundamentals were determined, predictions were made, and price responses to shocks in their fundamentals were shown. According to the estimations of the projections of the real estate market models, neither house prices at the national nor the city level are highly overpriced, and hence no bubbles have been detected. The results also show that in the short-term, house prices at the national level adjust with 5.6% in each quarter to their equilibrium level. At the city level, the adjustment speed is between 1.3% and 9%. Impulse Response Functions have shown that at national and city levels, the strongest price response were to a shock on the Long-term Interest Rate.      «

Stability in the real estate market is an essential aspect of maintaining the stability of the entire economy. Since real estate market experienced price declines or large fluctuations before the financial crisis in 2008 and the prices started to grow rapidly after 2008, the real estate market has been the subject of many studies. Moreover, in Germany the prices of existing real estate increased by 68% at the national level between Q3 2008 and Q4 2021. At the city level the increasing of the pri...     »