The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
In this paper we provide tools for assessing the house prices and housing valuation. We
develop two approaches: (i) borrowing capacity approach, and (ii) intrinsic value approach.
The borrowing capacity of households, together with their down payment, implies how much
housing they can attain. In the intrinsic value approach, property value is viewed as a
discounted present value of adjusted net rental income. Our approach does not involve a
complex econometric model and only widely available data are used. The proposed
indicators can guide households, financial markets and macroprudential authorities in their
understanding of house prices development. To illustrate the concepts, we analyze the
housing prices in the Czech Republic and assess the degree of market over-and undervaluation.