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House Price Efficiency: Expectations, Sales, Symmetry

Author

Listed:
  • Arthur Grimes

    (Motu Economic & Public Policy Research)

  • Andrew Aitken

    (Motu Economic & Public Policy Research)

  • Suzi Kerr

    (Motu Economic & Public Policy Research)

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

  • Arthur Grimes & Andrew Aitken & Suzi Kerr, 2004. "House Price Efficiency: Expectations, Sales, Symmetry," Urban/Regional 0408001, EconWPA.
  • Handle: RePEc:wpa:wuwpur:0408001
    Note: Type of Document - pdf; pages: 48
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    References listed on IDEAS

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    1. Case, Karl E. & Mayer, Christopher J., 1996. "Housing price dynamics within a metropolitan area," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 387-407, June.
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    4. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    5. Arthur Grimes & Suzi Kerr & Andrew Aitken, 2003. "Housing and Economic Adjustment," Working Papers 03_09, Motu Economic and Public Policy Research.
    6. Can, Ayse, 1992. "Specification and estimation of hedonic housing price models," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 453-474, September.
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    11. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-137, March.
    12. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-670, Special I.
    13. Capozza, Dennis R. & Seguin, Paul J., 1996. "Expectations, efficiency, and euphoria in the housing market," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 369-386, June.
    14. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
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    Citations

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    Cited by:

    1. Arthur Grimes & Andrew Aitken, 2004. "What's the Beef with House Prices? Economic Shocks and Local Housing Markets," Working Papers 04_08, Motu Economic and Public Policy Research.
    2. 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.
    3. Christian Pierdzioch & Jan Christoph Rülke & Georg Stadtmann, 2012. "House Price Forecasts, Forecaster Herding, and the Recent Crisis," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(1), pages 1-14, November.
    4. Arthur Grimes, 2005. "Intra & Inter-Regional Industry Shocks: A New Metric with an Application to Australasian Currency Union," Macroeconomics 0509019, EconWPA.
    5. 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.
    6. Arthur Grimes & Andrew Aitken, 2006. "Housing Supply and Price Adjustment," Working Papers 06_01, Motu Economic and Public Policy Research.
    7. 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.
    8. Michelle Poland & David C Maré, 2005. "Defining Geographic Communities," Urban/Regional 0509016, EconWPA.
    9. Arthur Grimes & Suzi Kerr & Andrew Aitken, 2004. "Bi-Directions Impacts of Economic, Social and Environmental Changes and the New Zealand Housing Market," Working Papers 04_09, Motu Economic and Public Policy Research.
    10. 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.
    11. Viv B. Hall & John McDermott, 2006. "The Ups and Downs of New Zealand House Prices," Working Papers 06_03, Motu Economic and Public Policy Research.
    12. David C Maré, 2005. "Indirect Effects of Active Labour Market Policies," HEW 0509004, EconWPA.
    13. Steven Stillman & David C. Maré, 2008. "Housing Markets and Migration: Evidence from New Zealand," Working Papers 08_06, Motu Economic and Public Policy Research.
    14. 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.

    More about this item

    Keywords

    House prices; housing appreciation; housing market; adjustment dynamics;

    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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