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The Growth of House Prices in Australian Capital Cities: What Do Economic Fundamentals Explain?

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  • Glenn Otto
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    Abstract

    "This paper examines the ability of standard economic factors to explain the growth of real house prices in Australia's capital cities. Dynamic models are estimated for each city with the objective of identifying the major drivers of house price growth rates. The variable mortgage rate is found to be an important influence on growth rates in all eight capital cities. However, the size of the mortgage rate effect can differ substantially between cities. For example a 25 basis point rise in the mortgage rate reduces the long-run quarterly growth rate of real house prices by about 1 per cent in Sydney compared with only 0.4 per cent in Adelaide. The effects of other economic variables are less systematic, significantly affecting the growth rate of capital gains in some cities but not in others. Nevertheless, for most Australian cities economic factors are found to explain around 40 to 60 per cent of the variation in the growth rate of house prices." Copyright 2007 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

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    Bibliographic Info

    Article provided by The University of Melbourne, Melbourne Institute of Applied Economic and Social Research in its journal Australian Economic Review.

    Volume (Year): 40 (2007)
    Issue (Month): 3 (09)
    Pages: 225-238

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    Handle: RePEc:bla:ausecr:v:40:y:2007:i:3:p:225-238

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    Cited by:
    1. David M. Williams, 2009. "House prices and financial liberalisation in Australia," Economics Series Working Papers 432, University of Oxford, Department of Economics.
    2. Wadud, I.K.M. Mokhtarul & Bashar, Omar H.M.N. & Ahmed, Huson Joher Ali, 2012. "Monetary policy and the housing market in Australia," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 849-863.
    3. Leung, Charles Ka Yui & Shi, Song & Tang, Edward Chi Ho, 2013. "Commodity house prices," MPRA Paper 49489, University Library of Munich, Germany.
    4. Renée A. Fry & Vance L. Martin & Nicholas Voukelatos, 2010. "Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 465-485, December.
    5. Costello, Greg & Fraser, Patricia & Groenewold, Nicolaas, 2011. "House prices, non-fundamental components and interstate spillovers: The Australian experience," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 653-669, March.

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