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ivariate and panel unit root and cointergration tests, they conclude that there was a house bubble in the US prior to 2006. According to further conclusions the house price correction starting from 2006 has not been enough to return prices to fundamental and they suggest that prices may decline even further. However, not all of the studies share the same opinion. For example, Himmelberg (2005) argue that the high price-to-income and price-to-rent rations observed in that period were explained by shifts in real long-term interest rate and therefore there was no bubble in the US housing market. Moreover, Smith and Smith (2006) suggested that house prices were below their fundamental values derived from house rents where prices and rents were taken from a sample of matched single-family homes.

Looking from a prospective point of view, several research papers on the topic try to test the predictive power of the rent-price ration in order to forecast future house price movements. Gallin (2004) use a long-horizon regression approach to make forecast for future house price movements for three periods in the future. According to his results when house prices are high relative to rents (that is when the rent-price ratio is low) changes in real rent tend to be higher than usual and changes in real price tend to be smaller than usual. Furthermore, Murphy and Junhua (2009) study house price volatility through rent-price ratio predictive power across different regions in the US. They find evidence of overshooting in house prices in all of the regions they studied. Moreover, results show that there is a consistency of response to over- and under-valuation among house prices across the US, namely that price overshoot. However, for rents they found that regional differences in behaviour, with overshooting occurring in most, but not all, locations. Therefore, in our discussion we need to take into account that many models do not include factors such as transaction costs of rents, demographic factors, and other variables which exist and could also have significant effect on any kind of house price and rent volatility.

All the assumptions and approaches so far do not take into account the quality of rents and houses. Chang, Cutts and Green (2005) use hedonic regression approach and tries to find out whether or not changes in the price of houses and rents in the nineties are product of change in quality of the housing stock or explained by economic fundamentals. In their paper they support the rent-price ratio hypothesis. They conclude that a straight comparison between widely used indexes without quality-adjustment is not recommended. Moreover, it could lead to incorrect conclusion and also suggest existence of imaginary bubble. Indeed, Capozza and Seguin (1995) argue that a price-rent ratio is a 'successful' predictor of the appreciation rates only after the cross-sectional differences of owner-occupied versus rental housing are taken into account.

In conclusion to our brief examination on existing literature and theory of the topic, we can say that studies on relationship between house prices and rents can be divided by two different approaches. The first approach shares the macroeconomic point of view. Moreover, house prices movements have been related to fundamental economic factors such as interest rates, real rents, economic growth etc. However, the second approach directly test an implicit relationship b