Housing Cycles in Switzerland – A Time-Varying Approach

In light of the strong increase of house prices in Switzerland, we analyze the effects of mortgage rate shocks, changes in the interplay between housing demand and supply and GDP growth on house prices for the time period 1981- 2014. We employ Bayesian time-varying coefficients vector autoregressions to allow different monetary and immigration regimes over time. A number of structural changes, such as regulatory changes in the aftermath of the 1990s real estate crisis, the introduction of free-labor movements in the 2000s or the zero lower bound interest rate regime in the 2010s might have affected the responses of house prices to influencing factors. We investigate potential parameter changes and their importance in light of the current housing price boom. We find that 40% of house price variations can be explained by changes in demand and supply for housing. Furthermore, the response of house prices to mortgage rate shocks weakened after the 1990s real estate crisis and increased in size again during the recent house price boom.