Influence of economical factors on price bubble formation in Lithuania residential real estate market
Influence of economical factors on price bubble formation in Lithuania residential real estate market

Summary/Abstract: Abstract Real estate was often considered as a reliable investment, which constitutes a major part of person‘s property and satisfies one of the most fundamental individual needs. In the Baltic States, including Lithuania, the increase in housing prices was particularly rapid and of a great extent: in the last nine years real estate prices had increased more than four times some market segments. Increase of real estate prices in the new European Union member states have noticeably exceeded the increase of housing prices in European Union old-timers. The phenomenon of rapidly increasing real estate prices has evoked talks about the formed price bubble in real estate market. In the article it is sought to ascertain, whether the growth of macroeconomic factors could possibly have a crucial influence on such a sudden and rapid increase in real estate prices. This paper analyses the theoretical background of real estate price bubble: the understanding of real estate price bubble and reasons influencing real estate price bubble formation. The investigations of factors, influencing real estate price bubble, conducted by various scientists are analyzed. This paper also analyses residential real estate market tendencies in Lithuania during the years of 2000-2008. The analysis lets to identify the start of real estate price bubble and the period of real estate price decrease. Two researches are made in this article. According to the statements of the theoretical part about factors influencing real estate market, seven economical indicators are chosen: GDP, average salary, interest rates, inflation, number of new apartments, the number of issued building permits, and investment to residential buildings. These economical factors evaluate internal and external real estate surroundings. Firstly, correlation between economical factors and home price changes is evaluated. Secondly, regression analysis lets to identify the economical indicators, which exactly reflect housing prices, access the accuracy of the chosen regression model. Correlation and regression analysis allows precisely and objectively to evaluate the influence of internal and external macroeconomic indicators on the increase in real estate prices and determine the macroeconomic factors, which influence the tendencies of increasing real estate prices most precisely.

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