Price Bubbles in the Slovak Residential Real Estate Market and the Role of Macroprudential Policy: Evidence from 2014–2024

Abstract

This paper analyses the development of the Slovak residential real estate market between 2014 and 2024, with particular focus on the COVID-19 pandemic period (2020–2022), to assess whether a price bubble emerged and subsequently corrected. Using publicly available data from the National Bank of Slovakia (NBS), the Statistical Office of the Slovak Republic, and the International Monetary Fund, combined with methods of descriptive statistics, data analysis, comparison, and synthesis, the study examines a comprehensive set of market indicators including the Composite Residential Real Estate (RRE) Index, housing affordability indices, borrowing capacity indicators, and macroprudential policy measures. The results confirm that extreme property price growth of 23.5% and 21.3% in 2021 and 2022 respectively, concurrent with record-low interest rates and a sharp expansion of housing loans, strongly indicated the formation of a price bubble in the Slovak real estate market. The sharp reversal of the Composite RRE Index into the distress zone in 2023 corresponds to a bubble bursting event. The paper further evaluates the adequacy and effectiveness of NBS macroprudential policy, finding that while pre-pandemic tightening of LTV, DTI, and DSTI limits substantially enhanced systemic resilience, national macroprudential instruments proved insufficient to prevent the price imbalance driven by the ECB's ultra-loose monetary policy. Despite a subsequent price correction, residential property prices remain more than double their 2014 levels, posing an enduring challenge for housing affordability.