The housing market in Serbia – Segmentation, arbitrage and overvaluation

The paper discusses market trends and analyzes the regularities that appear on the Serbian national housing market and regional submarkets. It is assumed that, apart from the common market driving forces, the market for newly constructed houses and the market for the existing housing stock behave like two separate segments of the housing market with the imperfect adjustment of prices. The prime focus of the analysis is on the divergence between the prices in those two segments, with a special interest in the process of mutual adjustments. Granger causality tests are employed in order to reveal whether there is a causal relationship between the price indices in those two segments and it has been found that there is a causality relation between the existing housing market and the newly constructed house market prevailing among the regional submarkets. The same methodology is applied to test if there is any such causality between the regional markets. The results have confirmed a likely influence of the Belgrade new construction market on the other regional markets. The findings will help understand the process of price adjustments between the two market segments and will lead to policy recommendations.