Mortgage lending and house prices in Albania – a co-integrated analysis based on VECM

Abstract:

The general view that the banks’ lending plays a crucial role in the real estate market was again confirmed during the recent financial crisis. During the pre-crisis period, house prices in Albania increased rapidly, supported also by a fast expansion of mortgage lending.

This study aims to empirically analyse the relation between housing prices and banks’ financing in the long run, referring to a VECM model. The estimated results confirm the important role of mortgage to house prices. Meanwhile, the relation between house prices and interest rates resulted statistically insignificant.

Unlike the previous literature, exchange rate has been included as an endogenous variable. Results show positive correlation and statistical significance between house prices and exchange rate. Finally, this paper is expected to contribute to the literature as there are very few studies that elaborate on the macroeconomic factors’ influence on the housing prices in Albania.

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