Review of Economics & Finance Submitted on 15/Aug./2013 Article ID: 1923-7529-2013-04-19-14 Carlos P. Barros, and Luis A. Gil-Alana ~ 19 ~ The Housing Markets in Spain and Portugal: Evidence of Persistence Carlos P. Barros Instituto Superior de Economia e Gestão; Technical University of Lisbon Portugal and UECE (Research Unit on Complexity and Economics) E-mail: cbarros@iseg.utl.pt Luis A. Gil-Alana (Correspondence author) Faculty of Economics, University of Navarra E-31080 Pamplona, Pamplona, SPAIN E-mail: alana@unav.es Abstract: This paper analyses house prices in Spain and Portugal over the last twenty years. In recent decades, housing prices have increased dramatically in the two countries; However, in 2007 the US subprime mortgage crisis broke out, which had worldwide influences, including Spain and Portugal. The purpose of this research is to study the time series persistence and the potential presence of breaks in these two countries. From this viewpoint, it is interesting to see how housing policy makers design reforms to adjust the real estate market, an issue of real concern for both citizens and institutions. JEL Classifications: C22, C52; R29 Keywords: Housing prices; Spain; Portugal; Persistence 1. Introduction Housing prices in Spain and Portugal have registered one of the highest cumulative growth rates within the OECD (Organization for Economic Cooperation and Development) countries, since the mid 1990s until 2007. This behaviour, common to other countries as well, is the reason why national house prices have constituted a key area of research in recent years. The issue of the subprime mortgage crisis in the United States paralised all the transactions in the housing market influencing, therefore, the supply and demand for houses which brought down the price of property assets. The crisis soon spread across the world and put the world economy into difficulties, which resulted in the global intervention of governments. Since then, the control of housing prices is considered of great importance in the management of the economic crisis (Himmelberg, Mayer and Sinai, 2005). Spain, as a member of the OECD which has witnessed (excluding Germany and Japan) the highest increase in housing prices, forms the core study in this research. So, the contribution of this paper to the existing literature relies mainly on two key factors. First, due to the important role that housing wealth has on consumption, changes in house prices and in the degree of persistence have important implications both for economic activity and policy (see Chen, Kuan and Lin, 2007). Secondly, house intermediaries rely on the price series to manage their activity (see García and Raya, 2011), therefore it is very important to investigate the statistical properties of housing prices