Economics in a picture

Housing markets can affect economic activity both through the credit channel and the impact that housing wealth can have on consumption. Given that housing is the main asset of most families, changes in their equity value can affect private consumption.

To explain housing prices, variables such as GDP, disposable income, residential investment, labour force, the unemployment rate, interest rates and housing loans are typically used. In an exercise to forecast house prices, economic uncertainty was also considered, which reflects the doubts that economic agents have about any future event, including in the set of variables potentially used, consumer and business confidence and financial markets volatility. The exercise consists of estimating models with different specifications and choosing variables based on the performance of each one. From the study, it was possible to conclude that most of the macroeconomic variables seem to be useful in a context of forecasting the evolution of house prices in Portugal, and the importance of economic uncertainty indicators, measured by their probability of inclusion in each estimated model, has been increasing in recent years.

For more details, see Hill, Lourenço and Rodrigues (2020): “House price forecasting and uncertainty: Examining Portugal and Spain”, published in the Banco de Portugal Economic Studies, vol. VI, 4.

Prepared by Paulo M. M. Rodrigues and Rita Fradique Lourenço. The analysis, opinions and results expressed herein are those of the authors and do not necessarily coincide with those of Banco de Portugal or the Eurosystem.

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