Is the Swedish housing market overvalued? : An analysis using a Vector error correction model

This thesis attempts to answer if a bubble is growing on the Swedish housing market. This is done by assessing the extent to which supply and demand – represented by fundamentals – can explain the rise on the Swedish housing market. Empirically, this is done by estimating a Vector error correction model using quarterly data stretching from Q1 2000 to Q4 2019. The model uses house prices as its dependent variable and disposable income, interest rate, construction costs, financial assets, and employment as independent variables. The study finds that there is a long-run relationship between house price and the independent variables, and that this long-run relationship can explain the increase in house prices that has been seen in Sweden over the last two decades, and that this suggests that a housing bubble is unlikely. Furthermore, the model finds that, in the long-run, house prices are positively associated with financial assets, and negatively associated with disposable income, interest rates, construction costs and employment rate