The Unassuming Economist

“The [housing market] boom, which took place during 2004–08, was among the largest in the euro-area, and was driven by FDI and rapid credit growth. The bust was triggered by a decline in FDI following the onset of the global crisis in 2008 and was exacerbated by falling domestic output and employment starting with 2009. Despite their sizeable decline to date, housing prices may have further room to fall before reaching equilibrium. House prices have already declined by 26 percent since their peak in 2008. However, according to common house price ratios, the overvaluation gap is around 0–20 percent, with an average across methodologies of 7 percent. According to a housing market model, the valuation gap is around 14 percent,” says a new IMF study on the Housing Market in Cyprus: From Boom to Bust. Read the complete study here.