The risk of falling house prices in Italy

This paper shows that Italian house market is less exposed to price shocks than the American one. Variations in the house price index in real terms have been studied along with the affordability ratio and the relation between house prices and rent levels for the period 1995–2004 in Italian provinces. Comparison with US data reveals greater overpricing in the US during the expansion phase (2000–2004). Although a speculative bubble in all US metropolitan areas considered does not emerge, US financial and economic structural factors make the US real estate sector more exposed to price shocks. To test the compatibility of Italian house prices with fundamentals an econometric model is designed to analyze the provincial house prices from 1995 to 2003.