A restricted error-correction model of real house price changes is est
imated on Swedish panel data. In the long-run equation, movements in i
ncome, user costs, and construction costs were found to have a signifi
cant impact on real house prices. The estimates of the dynamic equatio
n reveals a rich autoregressive structure in real house prices. They a
lso suggest that adjustment toward the long-run relationship is quite
rapid. While the results are consistent with speculative behavior, it
is also shown that real house price fluctuations are well explained by
the development of fundamental demand conditions in this period. (C)
1998 Academic Press.