The predictive power of house price imbalance indicators

Abstract

Rationale The Banco de España regularly uses indicators that measure imbalances arising in the residential real estate sector to inform its quarterly decisions on the countercyclical capital buffer. This article analyses these indicators’ power to predict systemic crises. Takeaways •The residential real estate sector is particularly important for financial stability, as evidenced by the housing crisis in Spain that began in 2008. It is, therefore, essential to have early warning indicators for effective risk identification. •In the recent period, on data to 2023 Q3, house price imbalance indicators suggest that house prices remain moderate and around their equilibrium value. •After describing recent developments in these indicators, their predictive power is assessed using the AUROC metric.