Lithuanian house price index: modelling and forecasting

LTReikšminiai žodžiai: Laiko eilučių modeliai; Namų kainų indeksas; Pagrindinė vertybė; Prognozavimas; Prognozių derinys; Prognozės derinys; Forecast combination; Forecasting; Fundamental value; House price index; Time series models.

ENTimely monitoring of the housing market developments in Lithuania is one of the key elements in the analysis framework of the macroprudential authority aiming to contribute to financial stability in Lithuania. In this paper, we addressed three important questions related to Lithuanian house prices, namely, whether house prices are under- or over valuated, which explanatory variables have the biggest impact on the growth of house prices and what the future development of the Lithuanian house price index could be. Three separate modelling and forecasting exercises were performed in order to tackle these questions. The first exercise employs the vector error correction modelling (VECM) approach to assess under- or overvaluation of the house prices. We then use an autoregressive distributed lag model (ARDL) to evaluate which explanatory variables have the biggest impact on house price growth. As the last exercise, we develop a suite of models that are used to forecast future development of the house price index. The analysis presented in this paper may be viewed as a further step towards more formalised modelling and forecasting of the Lithuanian house price index. [From the publication]