Abstract ：Signi？cant fluctuations in house prices have received considerable attention in recent years. An understanding of the forces underlying the departure from fundamental values is important in explaining the mechanisms underlying housing market performance and predicting potential house price changes in the future. This study constitutes the ？rst use of a common trend (CT) model to analyze private house prices in the Swedish market. We employ a cointegration system to analyze the macro variables of consumption expen- diture per capita, user costs and house prices. We decompose shocks into those resulting from fundamental variables, speci？ed in this research as income and the interest rate, and those resulting from cyclical variables. The results indicate that interest rates play a dominant role in explaining house price swings, and are also signi？cant in determining user costs for households in Sweden. Transitory shocks are found to have little explanatory power for house prices and user costs in the long run. A number of tests have been per- formed to verify the robustness of the speci？cation and results.

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