Housing prices in Swedish municipalities : A study using Error correction model

The housing market is one of the markets that is regularly noticed by publications, studies and in people's everyday lives. Making an investment in the housing market is a big step associated with large sums that require some thought and financial planning. This paper studies fluctuations in the real housing prices in Swedish municipalities over short- and long-run given the factors affecting the demand and the supply in the market. The estimation is based on panel data collected over years 2005 to 2022, in 122 municipalities in Sweden. Like many other markets, the housing market consists of actors who sell housing on the market and actors who want to buy homes. For many individuals, the choice of housing is associated with their quality of life, security, the possibility of a desired career choice and much more. There are individuals in society who are forced to sell their homes, people who cannot count on sales proceeds from their housing investments, and so on. Many members in the market are dependent on the price development caused by changes made in the housing market and in the macroeconomic environment. To study price developments in the housing market, an Error correction model has been developed that estimates the real housing prices in the long- and short-run. Variables used to estimate demand and supply in the market are the mortgage rate, real disposable income, municipal tax, the proportion of the population that is between 25 and 44 years old, the unemployment rate, the building cost index, and the number of completed new productions. The results show that it takes almost 3 years for the housing market to adjust to the long-run equilibrium price. Fluctuations in the real housing prices broadly follow fundamental theories that exist within the subject and can be explained with included explanatory variables