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House Price Efficiency: Expectations, Sales, Symmetry

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  • Grimes, Arthur
  • Aitken, Andrew
  • Kerr, Suzi

Abstract

An efficient housing market is of critical importance for individual welfare and for a well-functioning economy. We test the efficiency of this market by estimating the factors that determine both the long-run and the dynamic paths of regional house prices. Our tests use a new quarterly regional panel data set covering the 14 regions of New Zealand from 1981 to 2002. The tests indicate that regional housing markets converge to an equilibrium consistent with consumer optimising conditions, and hence with long-run efficiency. However, some conditions required for short-run (dynamic) efficiency are violated. We find that extrapolative price expectations, based on past regional phenomena, lead to overshooting of house prices in response to new region-specific information. We also find that price dynamics are influenced by past regional house sales activity and that the dynamic adjustment process is asymmetric depending on whether house prices are above or below their long-run equilibrium.

Suggested Citation

  • Grimes, Arthur & Aitken, Andrew & Kerr, Suzi, 2004. "House Price Efficiency: Expectations, Sales, Symmetry," Motu Working Papers 292987, Motu Economic and Public Policy Research.
    • Handle: RePEc:ags:motuwp:292987
    DOI: 10.22004/ag.econ.292987
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    2. Grimes, Arthur & Kerr, Suzi & Aitken, Andrew, 2004. "Bi-Directional Impacts of Economic, Social and Environmental Changes and the New Zealand Housing Market," Motu Working Papers 292986, Motu Economic and Public Policy Research.
    3. Grimes, Arthur & Aitken, Andrew, 2004. "What’s the Beef with House Prices? Economic Shocks and Local Housing Markets," Motu Working Papers 292995, Motu Economic and Public Policy Research.
    4. Grimes, Arthur & Aitken, Andrew, 2006. "Housing Supply and Price Adjustment," Motu Working Papers 292873, Motu Economic and Public Policy Research.
    5. Pierdzioch, Christian & Rülke, Jan Christoph & Stadtmann, Georg, 2012. "House price forecasts in times of crisis: Do forecasters herd?," Discussion Papers 318, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    6. David C. Maré & Michelle Poland, 2005. "Defining Geographic Communities," Motu Working Papers 05_09, Motu Economic and Public Policy Research.
    7. Mare, David, 2005. "Indirect Effects of Active Labour Market Policies," Motu Working Papers 292900, Motu Economic and Public Policy Research.
    8. Grimes, Arthur, 2005. "Regional and industry cycles in Australasia: Implications for a common currency," Journal of Asian Economics, Elsevier, vol. 16(3), pages 380-397, June.
    9. Stillman, Steven & Maré, David C., 2008. "Housing Markets and Migration: Evidence from New Zealand," Motu Working Papers 292651, Motu Economic and Public Policy Research.
    10. Christian Pierdzioch & Jan Christoph Rülke & Georg Stadtmann, 2012. "House Price Forecasts, Forecaster Herding, and the Recent Crisis," IJFS, MDPI, vol. 1(1), pages 1-14, November.
    11. Andrew Coleman & John Landon-Lane, 2007. "Housing Markets and Migration in New Zealand, 1962-2006," Reserve Bank of New Zealand Discussion Paper Series DP2007/12, Reserve Bank of New Zealand.
    12. Arthur Grimes, 2006. "Intra & inter-regional industry shocks: A new metric with application to Australasian currency union," New Zealand Economic Papers, Taylor & Francis Journals, vol. 40(1), pages 23-44.
    13. Hall, Viv & McDermott, John & Tremewan, James, 2006. "The Ups and Downs of New Zealand House Prices," Motu Working Papers 292874, Motu Economic and Public Policy Research.
    14. Allan, Corey & Kerr, Suzi, 2013. "Examining Patterns in and Drivers of Rural Land Values," 2013 Conference, August 28-30, 2013, Christchurch, New Zealand 160191, New Zealand Agricultural and Resource Economics Society.
    15. Arthur Grimes & Andrew Aitken, 2010. "Housing Supply, Land Costs and Price Adjustment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(2), pages 325-353, June.

    More about this item

    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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