House Prices in Australia - 1970 to 2003 - Facts and Explanations
AbstractThis paper describes and explains changes in real house prices in Australia from 1970 to 2003. In the first part of the paper, we develop a national index of real house prices. We then discuss the main factors that determine real house prices and some previous attempts to model Australian house prices. We develop and estimate a long-run equilibrium model that shows the real economic determinants of house prices and a short-run asymmetric error correction model to represent house price changes in the short run. Consistent with economic theory, we find that in the long run real house prices are related significantly and positively to real income and to the rate of inflation as represented by the consumer price index. They are also related significantly and negatively to the unemployment rate, mortgage rates, equity prices, and the housing stock. Employing our short-run asymmetric error correction model, we find that there are significant lags in adjustment to equilibrium. When real house prices are rising at more than 2 per cent per annum the housing market adjusts to equilibrium in four quarters. When real house prices are static or falling, the adjustment process takes six quarters.
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Bibliographic InfoPaper provided by Macquarie University, Department of Economics in its series Research Papers with number 0504.
Length: 29 pages.
Date of creation: May 2005
Date of revision:
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location - - - Housing Supply and Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-05 (All new papers)
- NEP-FIN-2006-03-05 (Finance)
- NEP-GEO-2006-03-05 (Economic Geography)
- NEP-URE-2006-03-05 (Urban & Real Estate Economics)
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- Shengzu Wang & Patrizia Tumbarello, 2010. "What Drives House Prices in Australia? A Cross-Country Approach," IMF Working Papers 10/291, International Monetary Fund.
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