Assessing House Prices with Prudential and Valuation Measures

In this paper we provide tools for assessing the house prices and housing valuation. Wedevelop two approaches: (i) borrowing capacity approach, and (ii) intrinsic value approach.The borrowing capacity of households, together with their down payment, implies how muchhousing they can attain. In the intrinsic value approach, property value is viewed as adiscounted present value of adjusted net rental income. Our approach does not involve acomplex econometric model and only widely available data are used. The proposedindicators can guide households, financial markets and macroprudential authorities in theirunderstanding of house prices development. To illustrate the concepts, we analyze thehousing prices in the Czech Republic and assess the degree of market over-and undervaluation