House Price Dynamics in Finland

The paper analyses the time series behavior of Finnish house prices by means of modern time series econometrics. The data are seasonally unadjusted, quarterly series over the period 1979–1995. It is shown that house prices have become responsive to real after-tax interest rates only after the deregulation of financial markets. The long-rung income elasticity of house prices is well above unity. In the short-run house prices exhibit significant positive autocorrelation, but tend to revert towards the equilibrium level in the long-run