Constructing a house price misalignment indicator: revisited and revamped

This paper replicates and augments a multiple indicator approach of Schneider (2013) and Lenarčič and Damjanović (2015) of the aggregate house price misalignment indicator with the intention of showing the under- and over-valuation in house prices in Slovenia with respect to economic fundamentals. The updated indicator incorporates a subset of underlying indices that better appropriate the post-Covid period. The main findings are that during the 2004-2008 economic boom period the aggregate misalignment indicator clearly indicates a significant over-valuation in house prices in Slovenia. Similarly, another boom(-ish) period is also observed from 2020 on until the present day, but not to the same extent as before. On the other hand, during the second phase of the global financial crisis there was an abrupt correction in house prices.