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House prices, non-fundamental components and interstate spillovers: The Australian experience

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  • Costello, Greg
  • Fraser, Patricia
  • Groenewold, Nicolaas
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    Abstract

    Using Australian capital city data from 1984Q3--2008Q2, this paper utilizes a dynamic present value model within a VAR framework to construct time series of house prices depicting what aggregate house prices should be given expectations of future real disposable income - the "fundamental price" - and continues by comparing capital city fundamental prices with actual prices. The extent to which revealed capital city "non-fundamental" components spillover from state to state, as well as their long-term impact is also investigated. Results provide evidence of periods of sustained deviations of house prices from values warranted by income for all state capitals with the greatest deviations arising in the NSW market and starting around 2000. In general NSW is relatively more susceptible to spillovers transmitted from other states while ACT and WA are most isolated from the rest of the country.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 35 (2011)
    Issue (Month): 3 (March)
    Pages: 653-669

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    Handle: RePEc:eee:jbfina:v:35:y:2011:i:3:p:653-669

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: House prices Present value model House price fundamentals House price-income ratio VAR/VEC modelling;

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    Cited by:
    1. Musso, Alberto & Neri, Stefano & Stracca, Livio, 2011. "Housing, consumption and monetary policy: How different are the US and the euro area?," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3019-3041, November.
    2. Taylor, Dominic & Coleman, Les, 2011. "Price determinants of Aboriginal art, and its role as an alternative asset class," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1519-1529, June.
    3. Eli Beracha & Hilla Skiba, 2013. "Findings from a Cross-Sectional Housing Risk-Factor Model," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 289-309, August.

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