Housing prices and macroeconomic factors: evidence from Chile

Abstract

This paper analyzes the housing prices in Chile by using a reduced form model of supply and demand for housing space that includes macroeconomic variables to explain its behavior. The empirical analysis is carried out for the national housing price index in Chile, published by the Central Bank of Chile, using quarterly data for the period 2002.I to 2013.I. The main results confirm previous findings in the literature for Chile and other countries. First, there is a significant long-run relationship between housing prices and macroeconomic variables; specifically, disposable income, long-term interest rate, and supply factors, such as construction costs. Second, the speed of adjustment to equilibrium is high: 90% of the gap from equilibrium closes at three quarters.